Category Archives: taxes

Laffer wrong about inflation; what about tax cuts?

lafferCelebrity economist Arthur Laffer, who was a paid consultant for Gov. Sam Brownback’s tax policies, admitted that his dire predictions about U.S. inflation were wrong. Laffer warned in 2009 that Federal Reserve monetary policies could be more inflationary than the policies of the 1970s, when the inflation rate was in the double digits and the value of the dollar collapsed. That hasn’t happened. “Inflation does not appear to be monetary base driven,” Laffer has now concluded. So far, Laffer’s predictions that Kansas’ tax cuts would unleash strong economic growth haven’t panned out either. Laffer also argued on Fox News this week that Congress should abolish the minimum wage, which he derided as the “black teenage unemployment act.”

Local governments hammered by state cuts

budgetcutThe combination of the economic recession and the state’s income-tax cuts have hammered local governments. “Aid to local governments, which the state has routinely provided in various forms since the 1970s, plunged by over $1 billion between 2008 and 2013 after adjusting for inflation,” according to a report by the Kansas Center for Economic Growth. “Part of this reduction is due to spending cuts in areas like public health, community corrections, education and libraries. Another portion came from the elimination of two important sources of state funding for localities – funds designed to help keep local property taxes stable and be shared by county and city governments to support programs and services.” Many cities and counties have increased property taxes as a way to help offset these funding cuts.

A peek behind curtain of free-market think tanks

cashA document obtained by the Guardian newspaper offers a preview of the plans of some free-market think tanks in 2014. The July 29 document from the State Policy Network summarized 40 funding proposals from groups in 34 states. The proposals, which ranged in cost from $25,000 to $65,000, include efforts to reform public-employee pensions and benefits, repeal state wage laws, and eliminate state income and estate taxes. The Kansas Policy Institute requested $46,800 “to conduct a campaign calling for deregulation as an alternative to economic development incentives.”

Need balanced approach to balancing budget

BudgetDeficitThe public wants a balanced approach to balancing the federal budget, according to a new McClatchy-Marist Poll. Only 16 percent of those surveyed said that the best way to reduce the federal deficit was to cut spending. More than one-third favored reducing the deficit through more tax revenue, such as by limiting tax deductions on higher income. Thirty-eight percent backed both spending cuts and revenue increases.

Impact of state tax cuts will be hard to measure

taxrevenueNot only are the state tax cuts not acting like “a shot of adrenaline to the heart” of the Kansas economy, as Gov. Sam Brownback promised, it will be difficult to tell what effect the changes will make, the Lawrence Journal-World reported. We’ll never know “for sure whether Kansas specifically experienced significant gains as a result of this policy,” Justin Ross, an assistant professor at Indiana University, said at a recent conference at the University of Kansas. That’s because there are numerous factors that affect the economy, and the impact of the tax changes can’t be isolated. However, it is clear that the tax cuts are causing a large drop in state revenue – estimated to total about $3.8 billion over six years.

Being like Texas could be costly

texasBeing more like Texas, as Gov. Sam Brownback wants, could mean much higher property taxes and fewer services, Emporia State University professor Michael A. Smith warns. Major Texas cities have among the highest property-tax rates in the nation. And even with all its oil and gas revenue, Texas ranks 40th in per-pupil education funding and leads the nation in the percentage of people without health insurance.

Kansas not only state that cut taxes, funds for schools

school-funding“Five of the seven states that have cut general school aid per student by more than 15 percent since 2008 also cut personal or corporate income tax rates during this period,” wrote Michael Leachman of the Center on Budget and Policy Priorities. Kansas cut spending per pupil, adjusted for inflation, by 16.5 percent while passing tax cuts that are expected to cost $3.8 billion over the next five years, Leachman noted. The other four states are Oklahoma (22.8 percent cut in school funding), Arizona (17.2 percent), Idaho (15.9 percent) and Wisconsin (15.3 percent). The problem for Gov. Sam Brownback and the Legislature is that the Kansas Constitution requires the state to suitably finance education And as a three judge panel ruled – and the Kansas Supreme Court likely will affirm – it doesn’t fly to claim the state can’t afford to spend more on schools when it dramatically cut taxes.

‘Shot of adrenaline’ isn’t working yet

Forecasts of reduced tax revenue indicate that the state’s massive income-tax cuts aren’t yet acting like “a shot of adrenaline to the heart” of the Kansas economy, as Gov. Sam Brownback promised, our Friday editorial noted. And in other bad news for the administration, more than 50 Kansas counties are suing the state over millions of dollars in oil and gas taxes. Lawmakers have said that they will work to make sure the counties are paid in full. But Brownback officials are unlikely to release the money without a fight – especially if the state tax collections continue to disappoint.

‘Topeka Nick’ upbeat about revenue drop

Kansas Revenue Secretary Nick Jordan is starting to sound like “Baghdad Bob,” the former Iraqi spokesman who boasted about how great things were, contrary to visible evidence. After Kansas corporate tax collections in September were 17 percent less than expected, Jordan said that the numbers “show that Kansas businesses are investing.” After total tax collections in October were about 4 percent less than projections, the Revenue Department press release bragged, “Kansans keep more of their money through tax relief.” So far this fiscal year, which began July 1, the state has collected $27 million less in taxes than expected and nearly $175 million less than during the same period in 2012.

Poor pay more in states without income taxes

It likely is no coincidence that three of the six states with the highest tax burden on the poor also don’t have state income taxes. Washington state has the highest state and local tax burden on the poor at 16.9 percent of their income, according to a study by the Institute on Taxation and Economic Policy. In contrast, the top 1 percent of Washington residents pay 2.8 percent of their income on state and local taxes. Other no-income-tax states in the top six were Florida at No. 3 (13.3 percent burden on the poor) and Texas at No. 6 (12.6 percent). In Kansas, the bottom 20 percent of residents paid 10.3 percent of their income on state and local taxes last year, compared with 3.9 percent for the top 1 percent. Recent Kansas income tax cuts increased the tax burden on the poor while significantly reducing taxes on the wealthy.

Collecting less revenue is a positive sign?

Collecting about $8.5 million less in state tax revenue than expected during the first quarter of this fiscal year may be a positive economic sign, the Kansas Department of Revenue suggested this week. It may mean that businesses are investing more in machinery, the department speculated. A more likely explanation is that the recently passed state tax cuts aren’t acting like “a shot of adrenaline to the heart” of the Kansas economy, as Gov. Sam Brownback had promised. A report released last week by the Center for Economic Development and Business Research at Wichita State University forecast that next year’s nonfarm employment growth in Kansas will be 1.4 percent, less than the national average.

Government in the red for rest of the year

If the federal government’s spending were spread out evenly over the calendar year, Wednesday would have been the day the revenue ran out. For the remaining 97 days of this year, the government will borrow all the money it spends – at a rate of more than $10 billion a day. The only good news is that last year the government ran out of money 16 days earlier.

Number of Americans not paying income tax should drop

Mitt Romney got in trouble during last year’s presidential campaign for saying that the 47 percent of Americans who didn’t pay federal income taxes in 2010 thought they were victims and would vote for President Obama no matter what. As many people noted, most of that 47 percent were retirees, people who were disabled, college students, people in the military and people who were working (often more than one job) but didn’t make much money. Another big reason for the higher than normal percentage was the Great Recession, which caused many people to lose income. As the recovery continues, the percentage is expected to drop significantly. The Tax Policy Center estimates that the share of Americans paying no federal income tax will drop to 43 percent this year and will continue to fall to about 33 percent in 2024.

Could be years to determine impact of state tax cuts

So far, the state’s income tax cuts haven’t acted like a shot of adrenaline into the heart of the Kansas economy, as Gov. Sam Brownback said they would. Nor is that likely in the near future, according to top economists at the Kansas Department of Labor. They said this week that it was too early to tell if the tax changes are having an effect on job growth, and that it might take up to five years to determine the impact on employment, the Lawrence Journal-World reported.

Funding shortfall causing pressure on school taxes

The Wichita school board voted this week to keep the local property-tax rate flat, but other school districts haven’t been able to do that. Hutchinson is raising its taxes this year by 4.439 mills to offset funding cuts and cost increases, the Hutchinson News reported. “We estimate that our local taxpayers are paying 6 mills more than they should because the state is not paying equalization aid like it should,” said Lori Blakesley, director of fiscal management for the Hutchinson school district. Statewide, equalization aid this year is about $74 million less than the statutory requirement.

Kansas a model on wrong way to cut taxes

Nebraska wants to lower its state income tax, and is using Kansas as a model – of what not to do. Rather than approve tax cuts without a plan for paying for them, as Kansas did, the Nebraska Legislature created a tax-modernization commission to carefully evaluate different options. “The lesson from Kansas: Don’t wade into the complicated swamp of state policy without thinking through the consequences on state services and other taxes,” wrote Paul Hammel of the Omaha World-Herald.

California, Kansas waging ‘ideological battle’

Hoover Institution fellow David Davenport called California (his current home) and Kansas (where he grew up) “the blue and red point-counterpoint states of the nation” and the scenes of “a far more interesting and potentially important ideological battle than what we see in Washington, D.C., at the moment.” Writing for Forbes, Davenport said California has “become the model of blue-state governance (high taxes, high regulation)” while Kansas “is focused on shaping the mold for red-state governance (low taxes, high freedom). Even as California raised its tax rates, Kansas Gov. Sam Brownback is driving his state toward zero income tax, aiming to stimulate economic growth. It’s clearly a tale not only of two states but of two models of governance.”

Jordan points to bigger picture on taxes

When the 6.3 percent statewide sales-tax rate didn’t drop to 5.7 percent on Monday as promised by the 2010 Legislature, but instead dropped to 6.15 percent via action of the 2013 Legislature, was that a tax increase or decrease? It depends on how Kansans look at it, and Revenue Secretary Nick Jordan (in photo) and others want them to see a bigger picture. “Kansans will pay significantly less in taxes in 2013 than they did in 2012, and the savings will grow from there,” Jordan wrote in a commentary in Friday’s Eagle. Jordan also said that “when it comes to compassionate assistance to the poor, it is imperative to remember the full range of government benefits provided, rather than one item in isolation. Low-income and disabled Kansans receive more than $3.5 billion in assistance annually through programs already in place, forming a sizable safety net.” Recent Eagle editorials have questioned the state’s commitment to reducing child poverty and its failure to get rid of the regressive sales tax on food.

IRS abuse bad but not a political conspiracy

Lois Lerner, the head of the IRS tax-exempt department, did a bad job overseeing employees and should have immediately told Congress about the targeting of tea party groups, but there is no evidence that the targeting was part of a political conspiracy, wrote Stephen Stromberg of the Washington Post. “Given what we know now, the story that best fits the facts is that IRS employees subordinate to Lerner – in Washington or elsewhere – were involved in some unforgivably stupid behavior, and those above them failed to keep an eye on it,” Stromberg wrote.

IRS managers have double standard on documentation

Managers with the Internal Revenue Service were unable to provide auditors with accurate data or supporting documentation on many costs for a conference in Anaheim, Calif. – one of 225 conferences the agency held in fiscal years 2010 through 2012 at an obscene cost of $49 million, the Washington Post reported. Yet if citizens and businesses tried to claim such expenses without documentation, the IRS would reject them and possibly press charges for tax evasion.

State budget covers shortfall, but not for long

It took 99 days (nine more than the 90-day allotment and 19 more than legislative leaders said would be needed) for lawmakers to agree to set the state sales tax at 6.15 percent instead of allowing it to fall to 5.7 percent on July 1 as promised, our editorial Tuesday noted. Along with a phasedown of income-tax deductions, the tax increase is expected to raise about $777 million over the next five years. The extra revenue will help cover the shortfall created by last year’s tax cuts, but it won’t eliminate the state’s budget problems. Estimates show the state burning through its cash balances by 2018. And that doesn’t factor in the likelihood that the Kansas Supreme Court will order an increase in K-12 funding of about $500 million.

Some tax-exempt groups deserve scrutiny

The Internal Revenue Service deserves scrutiny and criticism for targeting conservative and tea party groups. But some of those groups also could use some scrutiny (as could some liberal groups). Though they claimed tax-exempt status as “social welfare” organizations, their activities seem primarily political. For example, while it was applying for tax exemption, the Wetumpka Tea Party of Alabama was sponsoring training for a get-out-the-vote initiative dedicated to the “defeat of President Barack Obama,” and CVFC, a conservative veterans’ group in California, was spending thousands of dollars on radio ads backing a Republican candidate for Congress, the New York Times reported. “While some of the IRS questions may have been overbroad,” said Donald B. Tobin, a former lawyer with the Justice Department’s tax division, “you can look at some of these groups and understand why these questions were being asked.”

Melcher’s tax argument draws ridicule

During the Kansas Senate’s tax debate last week, Sen. Jeff Melcher, R-Leawood, offered the novel argument that with a proposal to cut the sales tax on food from 6.3 to 4.95 percent, “we are encouraging the behavior of purchasing food and discouraging the behavior of purchasing anything else,” also calling it “social engineering” that could increase obesity in the state. That drew the notice of the Huffington Post: “Sure, there can be little doubt that an almost imperceptible decrease in the sales tax on groceries is bound to cause ordinary people to just straight-up spend all their disposable income on foodstuffs, to the detriment of all other industries.” The Wonkette blog exclaimed: “Look, Ma, we found a Republican what does not want to cut taxes!” Rep. Barbara Bollier, R-Mission Hills, told the Huffington Post, “I have no words.” Kansas City Star columnist Steve Kraske concluded: “Melcher won’t be living down that one for awhile.”

House freshmen aren’t taking blame for long session

Kansas House members are understandably irritated by the condescending attitude of some Senate leaders. The last straw was when Senate Majority Leader Terry Bruce (in photo), R-Hutchinson, blamed the long session in part on the House freshmen having difficulty grasping the major changes proposed for state policy, the Topeka Capital-Journal reported. Bruce said that most of the freshmen “spent half the session trying to find where the bathrooms are.” Rep. Blaine Finch, R-Ottawa, responded that House freshmen “are more than capable of understanding state tax policy” and “will not assume blame for the current state of affairs.” Finch also noted: “We were not in the building last year when the tax plan was passed without the ‘pay fors’ that are now so hard to find. It was not us who promised the public a temporary sales tax that we are now told needs to be made permanent to the vexation of many citizens and legislators.”

Governor needs to usher lawmakers to the exits

Instead of ending in 80 days, as promised by the Legislature’s new conservative GOP leaders, the legislative session has spun out of control. On the 91st day, which was Friday, the House unceremoniously rejected the Senate’s tax plan on a 5-109 vote and adjourned until Tuesday. That was despite a closed-door appeal to House freshmen that morning by Gov. Sam Brownback. Such rancor among conservatives reflects badly on the leadership of the governor, Senate President Susan Wagle, R-Wichita, and House Speaker Ray Merrick, R-Stilwell, and the resulting overtime days are wasting tax dollars. Senate negotiators took a big step Friday afternoon in blessing House negotiators’ preferred 6 percent sales-tax rate, but will the rank and file fall in line? Brownback needs to usher lawmakers to the exits.