Kansas’ Big and Damaging Tax Cut

Kansas Governor Sam Brownback is poised to sign what may be the most fiscally irresponsible and economically damaging piece of legislation to emerge from a state in many years.

The bill is estimated to cut more than $800 million — or 13 percent — per year from the state’s general fund.  That’s Kansas’ primary source of funding for schools, health care, and other services essential for prosperity and growth.

That $800 million per year is way more than Kansas can afford.  The legislature’s own research arm says that if Brownback signs the bill, starting in 2014, revenues will fall far short of what it would cost to maintain funding for schools, health care, and other state services at current levels — current levels that already reflect several years of recession-induced budget cuts.

So where’s that money going?  First, it will pay for massive income tax cuts for wealthy individuals and profitable corporations.

That’s not all.  Taxes on low-income seniors and working families will rise as a direct result of this bill, because it repeals two key programs – a rebate for grocery sales taxes and a property tax relief program for renters.

The legislation also makes Kansas the first state in the nation to exempt all “pass-through” business income from an otherwise broad-based income tax (and, as we have explained, very little of this break would go to small business job creators in growing industries).  It will also slash the top two individual income tax rates, disproportionately benefiting people with high incomes.

The legislation will also increase economic inequality in the state.  The average low-income Kansas household will pay an additional $148 per year in taxes under this bill.  The wealthiest 1 percent of Kansas households will receive average tax cuts of $21,087 per year.  (See this analysis from the Institute on Taxation and Economic Policy; the soon-to-be-enacted plan is the one labeled as the “Senate plan.”)

Governor Brownback is an ardent believer that large tax cuts produce huge economic booms, generating enough additional revenue to offset the cost of the rate cuts.  But the notion that large tax cuts pay for themselves has been thoroughly debunked by economists across the political spectrum.  In the future, when reality hits, Kansas will have three choices – raise large amounts of revenue from other sources, impose massive cuts in spending for schools and other public services, or both – all of which will slow the economy.

Kansas has already made some of the deepest cuts in the nation to its K-12 education system; per-pupil funding fell by $689 (12 percent) between 2008 and 2012.  This plan will make restoring these cuts highly unlikely.  Even worse, it will increase the likelihood of deeper cuts, further damaging the state’s long-term economic potential.