Senior Director of State Fiscal Research
Five years ago, Kansas cut income taxes deeply, on the theory that it would generate a burst of economic growth. But rather than booming, Kansas’ economy has grown more slowly than the rest of the country, and revenues are far below what the state needs, prompting cuts in key programs and services. A bill before the Kansas House Taxation Committee would help reverse these trends and put the state back on the road to fiscal stability. A second bill that a corresponding Senate committee approved today would take some of the same steps in the right direction.
The House bill would restore the pre-cut income tax rates for well-off Kansans, repeal a widely panned provision that exempts many businesses from paying state income tax on their profits, and halt additional rate cuts that will otherwise kick in in the future. The Senate bill would repeal the business tax exemption and restore some of the rate cut, but would leave the future rate cuts on the books.
Both bills recognize the short-sightedness of Kansas Governor Sam Brownback’s approach, which would leave the tax cuts in place and use budget gimmicks such as securitizing the state’s tobacco settlement fund. While both bills would take important steps forward, the House bill is clearly better. For one thing, the future rate cuts — which will be “triggered” in the future if revenues grow by more than just 2.5 percent — should be repealed if Kansas is to put its fiscal house in order and avoid the damage other states’ “triggered” tax cuts have caused.
As I wrote in my testimony for a hearing today in Kansas’ House Taxation Committee:
While the current situation is bad, things will only get worse if Kansas doesn’t reverse course. The additional tax breaks set to kick in over the next few years will likely further erode the state’s financial position, unless the state reduces funding needed to educate the state’s children and to provide other services that help lay the foundation for tomorrow’s economy. Gimmicks and one-time measures will only carry the state so far, especially at a time when the federal government is likely to reduce the financial assistance it provides and the country is due for a recession for which Kansas is far from prepared. Ten years ago, as the last recession approached, Kansas held $932 million in its operating reserves — over 16 percent of the state’s expenditures — making Kansas much better prepared for a downturn than the average state at the time. Today, the state’s operating reserves are more or less gone, leaving Kansas as one of the most poorly prepared states in the country for the next recession.
To save its future, Kansas must put its fiscal house back in order as quickly as possible. That means halting the so-called “march to zero” by repealing the additional income tax rate cuts currently on the books for future years and repairing the damage done by the tax cuts already in place.