Tuesday, October 25, 2016

Trump: Brownback Economics for America


Sam Brownback’s approval ratings as governor of Kansas are dismally low, yet polls show Donald Trump winning Kansas. How can both of those things be true? It does not make sense for Kansans to boo Brownback, but vote for Trump.

Over the last year, Brownback has consistently polled in the 20% approval range, the lowest of any governor in the nation. That almost unimaginable level of repudiation from Kansas citizens stems directly from his failed “Kansas experiment.” Brownback and his legislative allies cut income taxes in a big swoosh four years ago on the premise that the tax cuts would bring jobs and economic prosperity. Instead, the tax cuts broke the state budget and imperiled education, highways, and key services without delivering the promised economic jolt.

The experiment, which primarily benefitted the wealthiest Kansans, did not “trickle down” to middle or low-income Kansans. Rather, with the loss of credits like the food sales tax rebate, and increases in sales tax rates, lower-income taxpayers now pay more than before. Kansans noticed, and blame Brownback for the trouble.

But wait! Donald Trump has an almost identical economic plan: cut taxes sharply for wealthy Americans on the premise that this policy brings economic prosperity. He proposes creating the same kind of loophole for “business income” that Kansans have come to understand as deeply unfair. Past promoters of the Kansas experiment are now key members of Trump’s economic team.

Listen to Sam Brownback’s now famous words from four years ago:

“Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy. It will pave the way to the creation of tens of thousands of new jobs, bring tens of thousands of people to Kansas, and help make our state the best place in America to start and grow a small business.”

Now listen to Donald Trump from the first presidential debate:

“Under my plan, I'll be reducing taxes tremendously, from 35% to 15% for companies, small and big businesses. That's going to be a job creator like we haven't seen since Ronald Reagan. It's going to be a beautiful thing to watch.”

Same thing! Seductive words in the beginning, but the plan doesn’t work. Kansas provides powerful evidence.

Certainly this presidential election is more than a referendum on economic plans. Voters must weigh many important and complex issues. For Kansans, though, the economic plan should be a prime one. After all, it’s our issue. We are the ones in the front row seats, the on-the-ground witnesses to what happens when leaders go down an irresponsible path.

If you like what Brownback has done in Kansas, Trump may well be your guy.

However, to the majority of Kansans who are Brownback disapprovers: Giving Trump our six electoral votes, even by the slimmest of margins, would foist our troubles on the rest of the nation, and show that we have not yet fully learned the lessons from the Brownback years.


—This entry was originally published this week in a variety of Kansas newspapers.

Monday, October 17, 2016

Who Benefited for the Kansas Tax Cuts?


The hard evidence is in.

The bulk of benefits from the income tax cuts that broke the Kansas budget went to a small number of wealthy individuals, while Kansans at the low end of the income scale actually paid more.

The Kansas Department of Revenue publishes an annual report containing many tax collection statistics. Data on individual income tax receipts takes time to appear, but the 2015 annual report (page 22) now shows information for tax year 2013, the first year the tax cuts were in effect.

The annual report from a year earlier (page 22) provides tax year 2012 stats. Place the two sets of information side by side (chart below), and it becomes easy to see how the benefits were distributed.


Look first at the totals for All Kansas Residents. From 2012 to 2013 income tax revenue drops roughly $700 million.*

A $700 million tax break!

Did the lowest income Kansans receive any of that? No.

Taxes for those making $25,000 or less actually increased, from a $16 million credit in 2012 to a $12 million payment in 2013—a $28 million swing.

The next income levels up have a slight tax break, but hardly noticeable. The majority of the benefit—about $400 million—went to about 20,000 returns with an income level of $250,000 and up.

Note that Kansas Adjusted Gross Income (KAGI) drops about $6 billion from 2012 to 2013. Did the real income of Kansans actually go down that much? No.

Federal Adjusted Gross Income for those years does not show that drop (see IRS tax statistics) because it still includes “business income.” The first year that Kansas completely exempted “business income” from Kansas tax liability was 2013, which when excluded, causes KAGI to go down and yields up a tax break mostly for people in the highest income category.

Kansans with the lowest income paid more. Kansans with the highest income received an enormous tax break.

That is not speculation. That is not an estimate. That is precisely what happened, and continues to happen each year.

And remember that these numbers only reflect what occurred with the income tax. They do not show the effect of sales tax rate increases that gave Kansas the highest sales tax on food in the nation, or increased fees for services, all of which take a much larger percentage bite from the incomes of Kansans with the least wealth.

A small group of high-income individuals got a giant tax break.

Kansas got severe financial troubles, poorer services, a budget that does not work, and economic indicators that lag behind our neighbors and the nation.

Was it worth it?


* Note: Tax years correspond to calendar years. In terms of fiscal years, income tax revenue dropped $701 million in FY 2014 and then stayed down at that very low level in FY 2015 and FY 2016.

—This entry was originally posted on the Kansas Center for Economic Growth website.

Monday, October 3, 2016

October Update: The FY 2017 Budget Won’t Work


It’s even clearer now. The FY 2017 budget won’t work, which means mid fiscal year budget cuts are ahead. And those budget cuts must be taken from a set of expenditures already squeezed down and chopped up.

New information allows an update of the official version of the FY 2017 budget. We now know the actual beginning balance—$37 million—that carried over from FY 2016. We also now know the amount of FY 2016 unpaid bills—$87 million—forwarded for payment in FY 2017.

The carryover balance was above zero “on paper,” but only because Kansas did not pay all its bills in FY 2016. Had the bills been paid on time, the carryover balance would have been $50 million below zero. (That does not count the $96 million KPERS payment due for payment in FY 2016, but deferred until FY 2018. Timely payment of the KPERS bill would have taken the carryover balance even further below zero.)

The updated general fund profile (shown below) starts with the beginning balance of $37 million. The unpaid FY 2016 bills add onto FY 2017 expenditures. After pushing FY 2016’s unpaid bills forward, the gap between ongoing revenue and expenses grows to $430 million in FY 2017. This updated version of FY 2017 projects an ending balance of $5 million, but with two great big “IFs.”



The ending balance will be barely positive IF the sale of the bioscience authority brings in $48 million. That’s not likely.

And the ending balance will be barely positive IF revenue comes in as projected. However, three months into the fiscal year, general fund tax receipts are already $67 million below projections.

July tax revenue missed projections by $13 million, August missed by $10 million, and September missed by $44 million. The updated FY 2017 general fund profile shown above does not yet account for those misses. In early November, the FY 2017 revenue estimate will be revised—revised downward—and then the general fund will be “officially” underwater, triggering the necessity for more budget cuts.

Given actual experience in the first 3 months of FY 2017, the revised revenue estimate could potentially be $200 million (or more) lower than the current one.

Kansas does not receive nearly enough revenue to pay its bills, but that’s not a new phenomenon. The budget became structurally unbalanced four years ago, immediately after the implementation of unaffordable income tax cuts. Make no mistake. Kansas’ current troubled finances originate right there.


—This entry was originally posted on the Kansas Center for Economic Growth website.

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