Are Tax Cuts Working in Kansas?

Don't believe the hype you read in The New York Times.

A Republican member of the New York State Assembly emails: "I read a number of breathless articles about the 'failure' of tax cuts in Kansas.  … My concern is that the Left is winning the PR war on these tax cuts and will use this Kansas example against every governor who tries to reduce taxes if there is no push-back now. What are your thoughts on the Kansas tax cuts?"

Great question, assemblyman.

"Breathless" is exactly the word to describe the critics of the Kansas tax cuts, and indeed there are a number of them. For a flavor of the argument, one could check out a recent Paul Krugman column headlined, "Charlatans, Cranks, and Kansas," asserting, "Kansas isn't booming…the state's budget has plunged deep into deficit, provoking a Moody's downgrade of its debt." Or one could consult the New York Times editorial headlined, "Kansas' Ruinous Tax Cuts," which described the tax cuts of Governor Brownback as "spectacularly ill-advised."

Some voices in favor of the tax cuts are speaking out to correct the record. The chief economist of the Heritage Foundation, Stephen Moore, who is the co-author with Arthur Laffer, Rex Sinquefield, and Travis Brown of An Inquiry into the Nature and Causes of the Wealth of States, had an article in the Kansas City Star quoting Governor Brownback explaining that when looking at the Kansas jobs numbers, you have to distinguish between government jobs and private sector ones: "We've cut public-sector jobs by making government more efficient." As for private-sector job growth, "we're second in the region last year behind only Oklahoma, which has an energy boom."

And, Moore points out, "In Kansas City, the growth has been much faster on the Kansas side of the border than the Missouri side."

At the Web site of Americans for Tax Reform, Will Upton digs deeper into the Kansas-Missouri comparison and confirms that Kansas City, Kansas, has been outperforming Kansas City, Missouri.

Upton's post, headlined, "Kansas Tax Cuts Are Working," makes two other important observations. First, he notes that even with the newly lowered top tax rate of 4.8 percent—a reduction from 6.45 percent—"Kansas still remains a relatively high tax state." The Tax Foundation's handy map of top state income tax rates shows neighboring Colorado with a lower 4.63 percent rate. It's not too far away to Texas, South Dakota, or Wyoming, all of which have no state income tax at all.

Second, Upton notes that Kansas state law requires a balanced budget, so concerns about the state's so-called deficit are likely to subside when the state actually end up with a surplus. And speaking of the deficit, it's sure ironic that Professor Krugman is bemoaning one in Kansas when he's spent the past five years bellyaching about the effects of deficit hawks in Washington who kept the stimulus smaller than he wanted it. When it's deficits caused by liberal big-spenders, Krugman loves them. But when the threat of a deficit is the result of Republican tax cuts, Krugman sounds the alarm. Charlatans and cranks, indeed.

Nor is that the only irony. While The New York Times denounces as "ruinous" the Kansas tax cut, it is sitting in a state, New York, with a top rate of 8.82 percent. If all the government spending paid for by those high taxes were the panacea that the Times claims it is, you might expect New York to have a lower unemployment than Kansas. But check the numbers, and Kansas's seasonally adjusted unemployment rate for June was a low 4.9 percent, while New York's was 6.6 percent. "Ruinous," indeed.

Yet another irony is that the state-level revenue shortfalls are created in part by national tax increases backed by President Obama. By increasing the federal capital gains tax, that forced revenue realization into earlier years. This has affected not only Kansas but, as a Wall Street Journal political diary item by Allysia Finley pointed out, also neighboring Missouri, which has a Democratic governor.

The Kansas experiment is still in progress. A 2013 law will reduce the top income tax rate to 3.9 percent by 2018 and opens the window for even further reductions after that.

One final thought: the measure of the success or failure of these tax cuts shouldn't just be the effect they have on the bottom line of the Kansas state budget. The measure should be the effect they have on the budgets of the individuals, families, and businesses that are residents of Kansas. In the end it's money that belongs to them.