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Posts tagged Kansas

Don’t emulate North Carolina, either

Posted March 7th, 2018 to Blog

The ideologues advocating for large state income tax cuts haven’t given up defending the Kansas experiment, despite overwhelming evidence that it forced drastic budget cuts while doing nothing to stimulate growth. Now they would have us believe that North Carolina provides an even better example of the benefits of the tax-slashing strategy. It doesn’t.

Two recent analyses of the North Carolina tax cuts, which took effect in 2014, show pretty clearly that the cuts did not boost the economy, and that they will soon precipitate large budget shortfalls. Prior to the tax cuts, the state’s economy generally grew at a comparable rate to the surrounding states, despite North Carolina having higher personal income tax rates than its neighbors. And it outpaced the national economy, jobs in North Carolina growing at 5.8 percent from late 2001 through the end of 2013, compared to 4.2 percent for the nation.

Since the tax cuts took effect in 2014, has North Carolina’s economic performance become even more impressive? On the contrary; since 2014, North Carolina has lagged behind the nation in growth in jobs and GDP, and has also lagged behind neighboring Georgia and South Carolina.

The tax-cut advocates are fond of saying simply that since the tax cuts, North Carolina has experienced rapid growth. The state has certainly grown faster than Kansas, but nothing in the evidence suggests that the tax cuts boosted growth; in fact, relative to its neighbors and to the nation its performance declined after taxes were cut.

The North Carolina tax cuts were phased in from 2014 through 2019, and by next year will cost the state 15 percent of the general fund budget. Major fiscal challenges now loom on the horizon. The state’s budget analysts project a structural budget shortfall of $1.2 billion in 2020, with the shortfall rising after that.

Tax and budget cuts are a formula for decline, not prosperity. Over the past decade, North Carolina has cut per student funding for education — K-12 by 7.9 percent, higher education by 15.9 percent, when adjusted for inflation — and the tax cuts will make it difficult, if not impossible, to restore those funds, no less to increase its investments in the state’s children. They are putting the long-term prosperity of the state at risk.

These results are not surprising. Tax cuts have budget consequences; they do not pay for themselves through growth. In fact, the preponderance of serious research finds that the effects of state income taxes on state growth are negligible.

Let’s hope Iowa does not follow either Kansas or North Carolina down the path of chronic budget crises and underfunding of the state’s responsibilities for education, health and public safety.

Peter Fisher is research director of the nonpartisan Iowa Policy Project. pfisher@iowapolicyproject.org

Kansas poses warnings for Iowa

IFP News:

Failed tax-cut experiment shows states how not to proceed
New report exposes the danger of supply-side tax-cutting by states

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IOWA CITY, Iowa (Jan. 24, 2018) — A new report shows Iowa lawmakers should pay attention to the failed experiment in Kansas and focus any tax changes on fairness and stabilizing revenues for education and other critical services.

“Kansas tried cutting taxes to promote economic growth in 2012 and instead wound up lagging its neighbors — including Iowa — and the nation, forcing cuts in school funding and other needs,” said Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP).

The new report from the Center on Budget and Policy Priorities is the latest illustration of why Kansas shows how not to proceed. And now that this is clear, tax-cut proponents have backed off their earlier celebration of Kansas.

“It’s a bad risk for our state,” Fisher said. “It is being driven by outside forces and ideology, and we already know it does not work.”

In 2012, tax-cut supporters said Kansas would boost its economic competitiveness by sharply curtailing taxes on high-income people and businesses. While Kansas Governor Sam Brownback had called the cuts a “shot of adrenaline into the heart of the Kansas economy,” the result left tax-cut supporters scrambling for excuses, saying that the Brownback experiment was tainted.

CBPP, however, found the Kansas tax cuts to be a valid test of supply-side economics. That they failed the test is not a surprise. The CBPP report as well as previous IPP research by Fisher, available at www.gradingstates.org, shows that the preponderance of academic research has found that personal income tax cuts typically produce little if any economic growth.

From December 2012 (just before the tax cuts took effect) to May 2017 (just before they were repealed) jobs in Kansas grew only 4.2 percent, below all of its neighbors except Oklahoma and less than half of the 9.4 percent job growth in the United States.

Yet in Iowa, promises of tax changes are coming with a heavy dose of the failed supply-side, trickle-down approach. And work on the changes is — so far — behind closed doors.

“Iowa’s tax discussion from start to finish belongs out in the open. The impacts will be felt by all Iowans, and all Iowans should be at the table — with legitimate analysis like that from CBPP, IPP’s Peter Fisher and other respected Iowa economists, to be front and center,” said Mike Owen, executive director of IPP.

The Iowa Fiscal Partnership has identified keys to responsible tax reform, which includes eliminating federal deductibility as Governor Reynolds has proposed to reduce tax rates that appear higher than they are — but only if that change comes without a reduction in revenue, and does not increase the overall inequity in Iowa taxes that favors the wealthy.

“At a time of budget shortfalls, we cannot afford to lose more resources for schools and vulnerable families, and in any case we need to introduce more fairness in taxes to reflect Iowans’ ability to pay,” Owen said.  “Currently, the bottom 80 percent of Iowa working-age households pay — on average — 10 percent of their income in state and local taxes, and the wealthier pay steadily less. New income-tax cuts at the top would make this worse.”

CBPP’s research found that Kansas’s tax cut experiment was a valid — and failed — real-world test of supply-side economics for the following reasons:

  • Kansas sharply curtailed spending after enacting the tax cuts. Some argue that the tax cuts didn’t produce economic growth because lawmakers didn’t follow it with spending cuts, but this does not match reality. State spending was tightly restricted in the aftermath of the tax cuts. Between fiscal years 2012 and 2016, Kansas’s General Fund spending rose only 0.3 percent without adjusting for inflation and fell 5.5 percent after adjusting for inflation and population growth. If Kansas had cut spending more, its economic and job growth would have been even more lackluster as teachers, nursing home aides paid with Medicaid funds, private road maintenance contractors compensated with Highway Fund dollars, and others employed by the state would have had less money to spend locally.
  • Downturns in agriculture, energy, and airplane manufacturing don’t explain the tax cuts’ ineffectiveness. Some have cited the decline of oil, gas, and commodity prices, as well as a decline in Kansas’s energy sector to help explain the state’s poor economic performance. But the aircraft manufacturing and energy sectors are too small a part of the Kansas economy for their downturns to appreciably affect the state’s job creation record. The two sectors lost 2,500 and 3,100 jobs, respectively, between 2012 and mid-2017 — well under 1 percent of the state’s total employment. And, while combined earnings of farmers fell significantly in Kansas in the years following the tax cuts, all of the state’s neighbors except Nebraska had even bigger declines, as did the country overall. Despite this, Kansas’ job growth still lagged behind all but one of its neighbors.
  • Kansas’s exemption of “pass-through” income from the income tax led to only modest tax avoidance. The exemption for pass through income — that is, income from businesses such as partnerships, S corporations, and sole proprietorships that filers report on individual tax returns — did create an incentive for various kinds of tax avoidance strategies. But the Kansas Department of Revenue’s own data shows that there was, at most, only a small and temporary uptick in the number of pass-through business formations that might have been due to tax avoidance.

“Some will continue to argue that Kansas’s fiscal and economic struggles after its tax cuts aren’t relevant to other states, but plenty of evidence says that they are. Other states should be very cautious in pursuing tax cuts in the name of supply-side economics because time and time again we have seen this approach fail,” said Michael Mazerov, author of the report.

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KanOwaSin: Low-road neighbors, together?

Posted June 27th, 2017 to Blog

Here we sit in Iowa, nestled between two political petri dishes where experiments have gone wrong, and wondering if our elected leaders may let the mad scientists loose on us as well.

Some politicians would like to turn Iowa into another Kansas, another Wisconsin, where tax-cut zealotry already has driven down economic opportunity.

Welcome to KanOwaSin. In the anti-tax ideologues’ world, we’d all look the same. Why not ​share a name?


​Before someone squeezes another drop of anti-tax, anti-worker snake oil on us, let’s get out the microscope.Our friends in Wisconsin tell us: Don’t become Wisconsin. Our friends in Kansas tell us: Don’t become Kansas — and Kansans already are turning off the low road.A couple of researchers in Oklahoma are telling us: Listen to those folks. From the abstract of their working report:

“The recent fiscal austerity experiments undertaken in the states of Kansas and Wisconsin have generated considerable policy interest. … The overall conclusion from the paper is that the fiscal experiments did not spur growth, and if anything, harmed state economic performance.”

 

Their findings are among the latest exposing the folly of tax-cut magic, particularly with regard to Kansas, which IPP’s Peter Fisher has highlighted in his GradingStates.org analysis that ferrets out the faulty notions in ideological and politically oriented policies that tear down our public services and economic opportunity.

Iowa has long been ripe for tax reform, due to a long list of exemptions, credits and special-interest carve-outs in the income tax, sales tax and property tax. These stand in the way of having sufficient resources for our schools, public safety and environmental protection.

Each new break is used to sell Iowans on the idea that we can attract families and businesses by cutting  — something we’ve tried for years without success, as Iowa’s tortoise-like population growth has lagged the nation.

On balance, this arrangement favors the wealthy over the poor. The bottom 80 percent pay about 10 percent of their income in state and local taxes that are governed by state law. The top 1 percent pay only about 6 percent. Almost every tax proposal in the last two decades has compounded the inequities.

For the coming 2018 legislative session, and for the election campaigns later that year, we are being promised a focus on income tax. Keep in mind, anything that flattens the income tax — the only tax we have that expects a greater share of income from the rich than the poor — steepens the overall inequity of our regressive system.

Thus, as always, the devil is in the details of the notion of “reform.” If “reform” in 2017 and beyond means more breaks for the wealthy, and inadequate revenue for traditional, clearly recognized public responsibilities such as education and public health and safety, then it is not worthy of the name.

So, when you hear about the very real failures of the Kansas and Wisconsin experiments, stop and think about what you see on your own streets, and your own schools. Think about the snake oil pitches to follow their lead, and whether you want Iowa on a fast track to the bottom.

That is the promise of Kansas and Wisconsin for Iowa.

Or, if you prefer, KanOwaSin.

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Dan S. Rickman and Hongbo Wang, Oklahoma State University, “Tales of Two U.S. States: Regional Fiscal Austerity and Economic Performance.” March 19, 2017. https://mpra.ub.uni-muenchen.de/79615/1/MPRA_paper_79615.pdf
Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

Kansans deliver tax-cut cautions for Iowans

Posted February 15th, 2017 to Blog

As part of Moral Mondays at the Iowa State Capitol, Iowa advocates and lawmakers this week heard a cautionary tale from Annie McKay of Kansas Action for Children and Duane Goossen of the Kansas Center for Economic Growth.

Annie McKay, president and CEO of Kansas Action for Children, speaks at the Moral Mondays Iowa event this week at the Iowa State Capitol.
Annie McKay, president and CEO of Kansas Action for Children, speaks at the Moral Mondays Iowa event this week at the Iowa State Capitol.

At a time when Iowa lawmakers are considering significant tax cuts, McKay and Goossen, who analyze and promote child policies and conduct analysis of the Kansas state budget, traveled to Des Moines to outline the effects of what has become known as the “Kansas experiment,” a set of draconian tax cuts passed in 2012.

At that time, Goossen recounted, Gov. Sam Brownback promised the cuts would bring an economic boom to the state, with rising employment and personal income. People would move to Kansas. It would be, the governor said, “like a shot of adrenaline into the heart of Kansas economy.”

But, five years on, the promised economic boom has not arrived.

“Business tax cuts were supposed to be magic, they were supposed to spur job growth — and they didn’t,” said Goossen, a former Republican state legislator and state budget director under three governors.

In fact, since 2012 job growth in Kansas has lagged behind its Midwestern neighbors, including Iowa. The state has, however, seen years of revenue shortfalls and damaging budget cuts, eroding critical public services like K-12 and higher education, human services, public safety and highway construction.

In this period, the state has depleted its budget reserves, robbed its highway fund to shore up its general fund, borrowed money and deferred payments in order to balance the budget. Kansas has experienced three credit downgrades. Lawmakers have raised the sales tax twice and repealed tax credits that helped low-income families make ends meet.  (In fact, the bottom 40 percent of Kansans actually pays more in taxes today than before the 2012 tax cuts went into effect.)

These actions have real impacts. Last year, Kansas saw the third biggest drop in child well-being among states as documented by Kids Count. Its 3rd grade reading proficiency ranking fell from 13th to 30th.

“What we did in Kansas – there is no proof behind it,” McKay said.

Iowans today are better positioned to stand up to damaging tax cuts than their Kansas counterparts were five years ago, McKay said. “We did not that have same people power in 2012.” She advised Iowa advocates to make crystal clear how all the issues currently generating widespread interest — education, health and water quality among them — are linked to the state’s ability to raise adequate revenue.

“You are ahead of where we were,” she said. “You have the opportunity to not be like Kansas.”

 

annedischer5464Posted by Anne Discher, interim executive director of the Child & Family Policy Center (CFPC).
adischer@cfpciowa.org

McKay and Goossen’s talk Feb. 13 at the Iowa State Capitol was coordinated by the Iowa Fiscal Partnership (a joint effort of CFPC and the Iowa Policy Project) and supported by the Center on Budget and Policy Priorities. CFPC, through its Every Child Counts initiative, is one of more than two dozen sponsors of Moral Mondays, a weekly gathering during session to highlight issues that advance Iowa values like equality, fairness and justice.


Keeping Ahead of the Kansans

Posted April 9th, 2015 to Blog

As state legislators consider drastic cuts in Iowa’s income tax, they would do well to consider the experience of our neighbor Kansas, which enacted a huge income tax cut in 2012, and cut taxes again in 2013. These cuts have dramatically reduced state funding for schools, health care, and other services.

It is instructive to consider as well the experience in Wisconsin, where a large personal income tax cut took effect at the start of 2013, with similar results: subsequent job growth of 3.4 percent, farther below the norm than Kansas’ 3.5 percent from the implementation of its tax cuts.

None of this should come as a surprise. Most major academic research studies have concluded that individual income tax cuts do not boost state economic growth; in fact, states that cut income taxes the most in the 1990s or in the early 2000s had slower growth in jobs and income than other states.

Businesses need an educated workforce, and drastic cuts to education are likely to make it difficult to attract new workers, who care about their children’s schools at least as much as they care about taxes.

2010-PFw5464Posted by Peter Fisher, Research Director, Iowa Policy Project

See Fisher’s Iowa Fiscal Partnership Policy Snapshot on this issue.

 

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