I have been posting this continuing series for some time, but now the Arizona Republic wants in on my meme. “As a new legislative session is set to start in Arizona, a cautionary tale comes from Kansas, where deep tax cuts have resulted in steep budget cuts and anemic job growth.” A warning to Arizona on income-tax cuts: ‘Don’t do what Kansas did’:
The “Kansas experiment” of eliminating the income tax is a failure that Arizona would be wise to avoid, participants at the launch of a new economic-policy think tank were told Thursday.
“The moral of our story is ‘Don’t do what Kansas did,'” said Duane Goossen, who ran the Kansas state budget office for 12 years. The result of eliminating the income tax on small business and chopping down the income-tax rate has been disastrous, he said.
“It’s a Dumpster fire, it’s a real crisis,” said Goossen, who came to Arizona to help kick off the opening of the Arizona Center for Economic Progress.
Ducey goal: Zero income tax
His warning comes as Gov. Doug Ducey is putting the finishing touches on his State of the State speech amid speculation about how he will further his goal of eliminating Arizona’s income tax.
Goossen, along with Annie McKay of Kansas Action for Children, said Kansas’ experience shows tax cuts have not triggered the economic and job growth that Gov. Sam Brownback promised when he signed a wide-ranging tax-cut bill in 2012.
“We’ve actually been losing folks, because of reduced opportunities and reduced quality of life,” McKay told the estimated 75 people who gathered to mark the opening of the Arizona Center for Economic Progress.
The center is a project of the Children’s Action Alliance. The alliance’s president and CEO, Dana Wolfe Naimark, said Ducey’s continued devotion to his campaign pledge, along with the Monday opening of the next legislative session, seemed like a perfect time to bring some perspective on Kansas.
There were no lawmakers in attendance, and the audience skewed heavily toward representatives of groups that have advocated for increased state investment in education, infrastructure and social services.
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Kansas cut deep and quick
In Kansas, lawmakers cut the income tax by 25 percent in the first year of a multiyear tax package, and eliminated the income tax on an estimated 191,000 small businesses. They also approved a plan that continues to reduce tax rates.
The result: a steep drop in state tax collections, leading to nine rounds of budget cuts in the last five years.
“We were told we were on a march to zero, and we would not stop until income taxes were entirely eliminated,” said Goossen, who was a Democratic state representative in the Kansas Legislature for seven terms before joining the budget office.
A big gap opened between the state’s expenditures and money coming in from tax collections. To compensate, lawmakers passed a number of sales-tax increases. Those hikes brought only partial relief and left Kansas with the highest grocery tax in the nation, McKay said.
The sales taxes hit lower-income Kansans the hardest, compounded by the loss of tax credits for such things as low-income families, renters and dependents, McKay said.
Backlash at the polls
McKay said the fallout finally got people’s attention,when they realized the sterile budget numbers translated into things like no funding for early-childhood education and the loss of meals on wheels for homebound seniors and people with disabilities.
The tide started to turn, somewhat, when Brownback stood for re-election in 2014. He won, but his 4-point margin of victory was a shadow of the 31-point landslide he racked up in his first run. Last fall’s legislative election brought more fallout: 14 Republicans who backed the Kansas experiment lost in primary races, and another seven were ousted in general-election races.
The plan that calls for continued tax reductions is still on the books, but has been frozen until the state’s financial picture improves.
It’s unclear if that will happen anytime soon. The income tax that used to generate about half of the state’s money is now down to 40 percent. Since December 2012, the year the tax cuts hit, job growth in Kansas has been 2.4 percent, compared with 6.9 percent nationally. And a state budget surplus that stood at $709 million in 2013 had been whittled down to $36 million by 2016.
“The pitch to cut taxes sounded so good,” Goossen said. “But now they’re in a position of having to raise taxes and cut more just to survive.”
George Will’s mini-me at the Arizona Republic, GOP apologist Robert Robb, who has been spewing Libertarian la-la land economic nonsense from the Goldwater Institute for many years to the great detriment of Arizonans, naturally takes exception to the Arizona Center for Economic Progress warning.
Robb clutches his pearls and sniffs in an op-ed (and before you criticize me for my lack of civility to Robb, you should note Robb’s own complete lack of civility to anyone who questions his Libertarian la-la land economic nonsense), Robb: The Kansas scare story that isn’t:
The left regards Kansas as conclusive proof that supply-side tax policies don’t work. Kansas cut taxes and it was such a self-evident disaster than no other state should ever even consider it, goes the spin.
A new local think tank, the Arizona Center for Economic Progress, brought in a couple of lefties from Kansas to tell the scare story here, in an attempt to undermine Gov. Doug Ducey’s goal of making Arizona’s income tax as close to zero as possible. Not sure why that was thought timely, since Ducey has put that effort on the backburner in deference to the state’s still fragile budget balance.
Governor Ducey will propose a tax cut. Count on it.
In any event, the negative correlation between income taxes and economic growth, measured by increases in jobs and personal income, is well established by the work of economist Richard Vedder, among others. In his book How Money Walks, Travis Brown has documented the massive internal migration of people and income-production from high-tax states to low-tax ones, particularly correlated with the income tax.
What Robb does not disclose is that Richard Vedder is an Adjunct Scholar at the American Enterprise Institute (AEI), a think tank known for mostly libertarian and conservative perspectives, just like Robb. Travis Brown’s thesis is that people move based upon a state’s income tax. This is wrong on multiple levels. His book comes with a forward from trickle-down fraud Arthur Laffer. How does he explain the high-tax regulatory state of California, the most populous state? The interesting thing that happened when Kansas cut taxes and California hiked them; If California’s a ‘bad state for business,’ why is it leading the nation in job and GDP growth?
Moreover, even with the tax reductions, Kansas did not become a low-tax state. According to the Tax Foundation, Kansas still has the 23rd highest state and local tax burden as a percentage of personal income in the country.
What Robb does not disclose is that this Tax Foundation number is from 2012. Governor Brownback’s tax cuts were enacted in 2012 and 2013, followed by years of budget cuts. In 2014 and again in 2016, the S&P dropped Kansas credit rating, citing lack of cash reserves:
A major rating agency on Tuesday downgraded Kansas’ credit rating for the second time in two years because of the state’s budget problems.
S&P Global Ratings dropped its rating for Kansas to AA-, from AA, three months after putting the state on a negative credit watch. S&P also dropped the state’s credit rating in August 2014.
Forty-one states now have a higher rating from S&P. Only three – Illinois, New Jersey and Kentucky – have worse ratings. The ratings agency cited the state’s lack of cash reserves, even after multiple rounds of budget adjustments over the past year.
“The downgrade reflects what we believe to be structural budget pressures,” S&P credit analyst David Hitchcock said in the agency’s statement.
Kansas has struggled to balance its budget since Republican Gov. Sam Brownback successfully pushed the GOP-dominated Legislature to cut personal income taxes in 2012 and 2013 in an effort to stimulate the state’s economy.
Also in 2016, Moody’s dropped Kansas’ credit outlook from ‘stable’ to ‘negative’:
The day after the state Legislature passed its latest budget bill, the international bond-rating agency Moody’s dropped Kansas’ credit outlook from “stable” to “negative.”
Moody’s cited the state’s use of one-time-only money and pension underfunding – key features of the budget bill passed early Monday – as reasons for caution in investing in Kansas bonds.
“The revision of the state’s outlook to negative from stable reflects the ongoing difficulties it is having restoring structural balance to its budget and getting on a path to sounder funding of its pension liabilities,” said the Moody’s release announcing the change.
“By continuing to balance its budget with unsustainable, nonrecurring resources, including pension underfunding, it is accumulating large and expensive long-term liabilities that it will be paying off for a long time,” the release said.
As evidence that Robb is not an economist who relies on the science of economics, he relies on a non sequitur to validate his own partisan political hack beliefs:
There is one gigantic hiccup in the Kansas scare story of the left. The guy who inflicted the supposedly self-evident disaster, Gov. Sam Brownback, was [narrowly] re-elected in 2014.
Apparently the people of Kansas don’t believe having a more competitive tax code was the self-evident mistake the left makes it out to be.
This leap in logic is, of course, complete bullshit, like most everything Robert Robb writes. Kansas is a red state that votes out of GOP tribalism, nothing more, just like Arizona. There is no economic lesson to be learned from the election results.
Robert Robb is a polemicist and partisan hack GOP apologist, nothing more. He spent years doing this for the Arizona Chamber of Commerce and Industry and the Goldwater Institute before joining the Arizona Republic. He will support whatever tax cut plan that Governor Ducey and our Tea-Publican legislature come up with, because that’s what he does. It will not be based on sound fiscal policy or economics.