Why Liberals Hate Kansas
Sam Brownback's tax cuts must be discredited before they succeed.
Updated July 30, 2014 12:40 p.m. ET
Liberals accuse Republicans of exaggerating the damage of raising taxes. So it's amusing to hear the apocalyptic claims about Kansas Governor Sam Brownback's income-tax cuts. Their goal is to defeat Mr. Brownback for re-election but in particular discredit tax reform in the states.
By liberal accounts Kansas is experiencing a major fiscal and economic meltdown like well, you know, Illinois. The truth is that it's too soon to draw grand conclusions about the tax cuts, which have been in effect for all of 19 months. But some early economic indicators suggest they may be producing modest positive effects. The danger is that a coalition of Democrats and big-spending Republicans will pull out the rug before the benefits fully materialize.
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Kansas has long trailed its neighbors in private job and economic growth. The last decade's energy and farm booms in Oklahoma, Colorado, Iowa and Nebraska have increased the disparity. Though Kansas is part of the farm belt, agriculture makes up a mere 5.6% of its economy, about half as much as in Iowa. Meantime, manufacturing—a major contributor to state GDP—has been losing ground to other states.
In January 2012 Mr. Brownback proposed a revenue-neutral tax reform aimed at making the state more competitive. All of Kansas's surrounding states save Nebraska had lower top tax rates, and most also had lower unemployment. His plan slashed rates across the board, eliminated itemized deductions in toto and exempted small business income.
However, moderate Republicans—the main opposition party in Kansas—balked at clearing out the code's cobwebs. So the legislature passed the Governor's rate cuts with the expensive carve-outs for things like mortgage interest intact. Mr. Brownback signed the bill anyway hoping that lower revenues would induce spending restraint.
The top 6.45% bracket for income over $30,000 has disappeared while rates on individuals earning more than $15,000 have fallen to 4.8% from 6.25% and to 2.7% from 3.5% for those making less. These rates will slide to 3.9% and 2.3% by 2018. After tea-party groups toppled several Republican state senators who had opposed the Governor's original plan in 2012, a more conservative legislature revisited tax reform. As a result all itemized deductions save for charitable contributions will be reduced by half over the next five years.
Tax-reform critics complain that revenues (as expected) declined this year and that receipts were $235 million—or about 4%—below the state's estimate last year. However, predicting revenues was particularly challenging this year because federal tax changes encouraged investors to shift income to 2012 from 2013. Revenues missed the mark in numerous states including Iowa ($185 million; 3%), Missouri ($308 million; 4%) and Oklahoma ($283 million; 5%).
Thanks to a flush rainy day fund, Kansas finished the year $434 million in the black. The Kansas Legislative Research Department forecasts $112 million in reserves at the end of next year. But come 2016 lawmakers will have to limit spending, which has increased by nearly 20% since fiscal 2010. In May Moody's MCO -2.15% downgraded the state's credit rating, citing lower projected revenues and the state's $16.7 billion unfunded pension liability and school funding growth. But the rating is still four notches higher than Illinois's.
Contrary to liberal folklore, Mr. Brownback hasn't taken a meat-cleaver to schools. Total per-pupil spending has increased to $12,885 from $12,283 over four years. State education spending has risen by about 2% annually since 2010 and is set to jump 4% this year—which doesn't include a 10% bump for teacher pensions.
It's also untrue that tax cuts have hurt the poor. The tax rate on individuals earning less than $15,000 has fallen by nearly a quarter while the standard deduction has increased to $5,500 from $4,500. Although Republicans extended a temporary sales tax hike that Democratic Governor Mark Parkinson signed in 2010, they also reinstated a food sales tax rebate that will offset most of the cost for the poor. Kansans earning the minimum wage will net about $100 under the tax reforms.
Low-income workers may also benefit from small business growth in industries like construction, hospitality and food service. Since the tax cuts took effect, the gap in job creation between Kansas and neighboring states has shrunk.
Kansas's rate of private job growth between January 2013 and June 2014 averaged 167% of that in Nebraska, 105% of Iowa and 61% in Oklahoma. That compares to 61%, 85% and 42%, respectively, between 2004 and 2012. While Kansas added jobs at a slower pace than Missouri this year, its private economy grew more than twice as fast as its eastern neighbor last year. According to the Associated General Contractors of America, Kansas recorded the fourth highest growth in construction nationwide between March 2013 and 2014.
Kansas's private economy last year also grew faster than the nation as a whole and on par with California, which offers a counterpoint to the liberal assault on the Brownback tax cuts. California's growth slowed in 2013 following a huge tax increase on the wealthy. Could the tax hikes be to blame?
Mr. Brownback has led the movement for tax reform, which has been taken up by Republicans in Oklahoma, Missouri, Ohio, North Carolina and Wisconsin. Liberals are trying to stop the trend from spreading by predicting catastrophe. They're afraid people may soon be asking what's right with Kansas.
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