Kansas Ends its Radical Tax Experiment | The Bell Policy Center

Kansas Ends its Radical Tax Experiment

Date: Jun 20, 2017

Kansas Governor Brownback’s “real-live experiment” with radical tax cuts to promote economic growth is over. The major tax cuts did not deliver what was promised - economic growth. In fact, Kansas saw a 4.8 percent economic growth from the end of 2012 through the beginning of 2016, which was less than half that of the nation’s 11.9 percent growth rate within the same period. In 2015, total personal income grew by 4 percent nationally, while Kansans saw only a 1.9 percent improvement.  

Gov. Brownback’s 2012 tax plan, “The March to Zero,” eliminated Kansas’ top income tax bracket, treating the wealthiest 1% to large tax cuts but raising taxes on the bottom 20 percent of earners. His plan eliminated individual income taxes, resulting in defunded public services and reduced child and dependent tax credits for Kansas families. The Kansas budget was in the red by about $700 million this year and was expected to have a $900 million shortfall in the upcoming two years, before lawmakers stepped in. 

On June 6th, Kansas lawmakers voted to override Gov. Brownback’s veto of Senate Bill 30, which ended the experiment and raised taxes again. These changes will raise $1.2 billion in state revenue over the next two years by gradually increasing taxes. The idea that cutting taxes and the size of state government would result in strong economic growth was proved wrong in Kansas.

To understand the effects of the tax cuts and Kansas lawmakers’ plan to overturn them, we interviewed Heidi Holliday, Executive Director at the Kansans Center for Economic Growth (KCEG), a progressive nonpartisan policy research and analysis organization.  According to Ms. Holliday, the nine rounds of tax cuts since 2012 led to higher school district enrollment fees, motor vehicle taxes, and state sales taxes just to cover costs like highway patrol.  Overall, cities and non-profits were not being properly funded to meet the growing need for services, and now the Kansas economy does not have enough resources to supplement the lost dollars from the harsh tax cuts.

Holliday identified three main goals that organizations like KCEG focused on in this year’s movement to overhaul these tax cuts. They were:

  1. Ending the March to Zero percent income tax plan
  2. Closing the business tax loophole which exempted businesses from income, providing an opportunity for wealthier residents to exploit the loophole and avoid income taxes by pretending to be small businesses
  3. Reinstating the third income tax bracket for people with high incomes

Kansas communities and organizations also wanted to see a comprehensive tax reform plan as part of this year’s budget, and Senate Bill 30 accomplished just that.  It ended the March to Zero income tax by preventing future phase out of tax rates  which enables Kansas to then invest the increased revenue in public services  such as public safety and education.  The bill eliminated the exemption from income tax for different types of businesses such as Limited Liability Corporation’s (LLC’s), S-corporations, partnerships, farms, and sole proprietorships. It also ensures that these businesses will pay the same income tax rates as other Kansans. The LLC loophole resulted in low-income Kansans paying higher taxes and wealthy Kansans paying lower taxes. The bill also adds the third income tax bracket Ms. Holliday was hoping for.  As a result, married couples with income up to $30,000 will be taxed at 3.1 percent, couples falling between $30,000-$60,000 will be taxed at 5.25 percent and those with incomes above $60,000 will be taxed at 5.7 percent. It also reduces the sales tax rate on food by 1.5 percentage points, which will decrease expenses for Kansas families.  Lastly, the bill reopens deduction and credit opportunities for child-care expenses and mortgage-interest write-offs.

The chart below shows how Kansans at different income levels fared under the various income tax plans.  Even with the new increases however, high income Kansans will still pay a smaller percentage of their income in state taxes than those at the low end, because state sales taxes fall more heavily on lower income people.

Kansas provides a clear example of what not to do to promote economic growth.  Slashing state taxes and shrinking the size of state government as Gov. Brownback did has backfired enormously. States should strive for a more realistic approach to taxation, one that generates sufficient revenue to invest in public systems that help all community members. 

One last important point: even with the massive income tax cuts, Kansans still spent a greater percentage of their budget on state expenditures than does Colorado. The chart below shows how much Coloradans and Kansans spent on general government expenditures as a percentage of their total state personal income between 2007 and 2015.  General Government Expenditures essentially represent total spending including General Fund appropriations as well as federal funds and cash funds.  Before the large tax cuts, Kansas spent on average 2.3 percentage points more of their economy on state government then we did in Colorado.  Even after the tax cuts took effect in 2012, Kansas still spent 1.5 percentage points more of its economy on state government than Colorado did. Neither state was or is making the kind of investments in public systems necessary to promote economic opportunity for all its residents, but given the results of the Kansas experiment, it is becoming even more clear that we need to do better by our communities.

Sources: United States Census Bureau, Bureau of Economic Analysis