Taxes

Are Tax Cuts Working in Kansas?

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

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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.

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  1. One of the NPR morning news programs also had a story on this within the past few days. They made it sound like it was generally accepted that the tax cuts have been bad for Kansas and the only thing up for debate was, How much will Team Red suffer as a result?

    1. That’s de rigueur. It’s the loaded question fallacy writ large.

    2. “the only thing up for debate was, How much will Team Red suffer as a result?”

      were they at least able to contain their glee?

      1. No. You could tell they had their happy fake-solemn faces on.

    3. I’m not going to sugar coat this….

  2. Don’t believe the hype anything you read in The New York Times.

    FTFY.

  3. 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.”

    Kansas is really not that conservative and neither is Brownback. The state’s reputation comes from the pervasive influence of dumb, crazy populist Democrats who think that anything short of a blank check to anyone in government for any reason is akin to an evil Kochtopus plot to work orphans to death in the GMO mines for fun. The “threat” to the Kansas Arts funding was a great example. Brownback not wanting taxpayers to blindly fill the coffers of pretentious art groupies was seen as a horrible atrocity against all of humanity.

  4. “In the end it’s money that belongs to them.”

    That’s just crazy talk.

  5. If Krugnuts says you’re doing it wrong then you are doing it right. He’s like the perfect economic indicator.

  6. The last paragraph couldn’t be more true. Even in a conservative state, local newspaper opinions about state politics only tackle issues from one angle, which is always how a new law or proposal will affect the state government. There’s almost no mention of how the lives of regular people are changed.

    1. You know, the tax cuts didn’t go to regular, wage earning people. They went to business owners. And as a business owner I’m always happy to reduce my expenses, it is coming at the cost of public education for people that are wage earners. What happened to the concept that taxes were payments for services provided? We make it sound as if the money just goes to the state capital and gets burned. It goes to pay for services that all Kansans use.

      1. Yeah, no grift or waste, right?

  7. Isn’t tax cuts producing more taxes really old news? Both the Bush and the Reagan tax cuts produced more returns from the higher quintiles of taxpayers, it’s just that the reporters tried to make it look the other way around by only talking about the higher deficit, which was caused in part by more spending.

    And that’s how it’s always going to be, the media will always cover it up, until the Republican party gets some damned balls and starts suing the goddamned communist fucking reporters

    1. But, but, this isn’t true. What measure are you pointing to as proof that the higher quintiles produced higher returns? If I missed something, I’d love to see a chart or diagram.

  8. Work, more jobs and more money in your paycheck! More people working equals more revenue and less burden on the government.

    How simple does it have to be!

    1. But what does that have to do with what actually was done in KS? Of course more people working leads to more people paying taxes, but how is that statement connected to ending taxes for small businesses? They don’t make expansion decisions based on their tax rates, and the world is awash in capital for expansion already.

      1. Speak for yourself. As a pass through entity, higher taxes always leads to less expansion for my company.

        And in fact, I actually have to access debt in April – July due to the tax system.

        If you have a rapidly growing business, then you experience this.

        You’re paying increased taxes for the last year, and increased estimated taxes, and you’re probably having to increase your SEP all in April.

        Then there is June’s estimated income taxes.

        Then, there is a large state sales tax which comes in July. Granted this is collected, but it does affect cash flow.

        Keep in mind this is a business with physical inventory – we also have to load up for Xmas at around the same time.

        I make sure to start “saving” for taxes in January. Yes…we all want our business people to save for taxes rather than expansion.

  9. This would really help the people who have worked and paid more taxes and now reduced a bit. Try to lower as much to improve the benefit of individual life which develops the society to stay healthy and wealthy.

  10. Much like the liberals were quick to criticize the tax cuts in Great Britain only to see a couple years later job growth increasing, US companies doing tax inversions to move their HQ there.

  11. The folks at Reason keep forgetting that states are currency constrained while the federal government is not. How about getting a better grasp on how our monetary system works?

    1. Translation: “states will have to pay back money they borrow, but the Feds will not”

      1. You are correct, but the reasons are a bit more complex. The federal government can create money, but the states cannot. An interesting bit of history: the U.S. federal government has been in debt throughout its entire history, except for a brief stretch when Andrew Jackson was president and the entire federal debt was paid off and there was a true surplus. Within 2 years the economy was hit with a deep economic depression. It’s also interesting that the next 5 times there was a federal budget surplus, the country had an economic depression within 2 years. The last time we had budget surplus (which has happened 7 times total) was under Clinton. Some say that the tech stock bubble, the easy money policy of the Fed, and the residential real estate bubble all caused a delay of the inevitable result of the federal budget deficit: the great recession. Of course, correlation does not prove causation — but it is interesting to note the pattern.

  12. If we can’t truly assess Obamacares impact right now, then why can we expect to assess Kansas’s tax breaks right now.

    I guess for Liberal policies they need years, but conservatives only get a couple of months.

  13. You libertarians just can’t appreciate the genius of Krugman. This sage prize winning economist knows full well that when the economy is slowing, the answer is taxes. His superior intellect has allowed him to conclude that when your household begins to suffer financially the answer is to have a mugger over to involuntarily seize your wealth. With that in mind, the federal government will be instituting a new pilot program to aid in the war on poverty; violent muggings, home invasions and general theft of the wealth of every family below the poverty line will end poverty in our time. God bless you, Krugman.

    1. Oooh oooh, maybe we can start breaking windows in order to spur economic growth too!

      1. A few years ago a meteorite that slammed into the Russian north created a sonic boom that shattered windows for hundreds of miles. Russia had never known such prosperity.

      2. You’re thinking too small, if you’d like to use Krugman’s own suggestions we need space aliens to blow up cities.

        That’s the problem with non-progressives, they all think to small. Why break a window when you can blow up a city or build miles and miles light train rails to nowhere?

  14. Hmm… call me skeptical… to my knowledge, tax cuts have never resulted in jumps in revenue (yes, people talk about the Kennedy tax cuts a have a century ago, but the rise in revenue was more directly attributable to the cycle of economic growth). It’s also worth noting that while the overall tax rate is still in place, a category of income, pass through, has been exempted.

    There seems to be a misunderstanding of where tax rates fall in the question of a business expansion. It is far down the list – entrepreneurs make their decision based on demand.
    http://cheatinghistory.com/?p=260

    1. If let’s true, let’s double taxes on business. It’ll have almost no effect, right, since it’s so far down on the list of concerns for entrepreneurs?

      1. Triple taxes. Increase the minimum wage to $50/hour. It’s all good.

    2. Aren’t there articles being posted right now about “Economic patriotism”?

      Companies moving to avoid taxes?

  15. Wow. The State-fellators are against tax cuts. Shocking. Wonder what position Thomas Frank–the Linda Lovelace of State-fellators–takes on this issue.

  16. Is it too much in an article like this to ask the writer to specify what taxes are being talked about? Personal income? Business? Sales tax?

    1. Well, he did conveniently link to his own (un-cited) article blogpost.

  17. Dear Kansas,

    Please increase your state income taxes to NY levels. Raise property taxes and sales taxes to fund every “creative” art project that fails to garner private support from the unwashed masses and build a high-tech mono rail linking…just build a monorail. Borrow money to increase the pay of your current public school teachers and your even-more-important public school administratiors. In fact, all Kansas state bureaucracts deserve big fat raises. These progress-ive ideas will lead to utopia.

    Sincerely, Texas

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