A Kansas Story

Great Seal of Kansas (detail)

It was not so long ago that Don Gonyea of NPR filed a report on the gubernatorial race in Kansas:

This isn’t your typical incumbent-in-trouble story, though. In office, Brownback has done exactly what he said he would. But many, many voters aren’t happy, including a lot of Republicans.

Big tax cuts that Brownback championed have left Kansas with a serious budget problem ....

.... Some of the loudest complaints have come from moderate Republicans. This summer, 104 Republicans — current and former Kansas officials — held a press conference to endorse Davis.

Brownback’s problem is that in fulfilling his promise to alter the state’s financial structure, he failed to fulfill the other part of his promise, that doing so would help Kansas.

In the first gubernatorial debate recently at the Kansas State Fair, Brownback addressed the state’s economic issues. “Our unemployment rate is 4.9 percent. We have a record number of Kansans working. We have the fastest-growing economy in the region and more new business created than ever in the history of the state,” he said.

But Democrat Paul Davis countered with a darker view of things, saying the deficit is projected to hit $1.3 billion in five years.

“Our credit rating has been downgraded three times. We’re 45th in the nation in new business creation,” Davis said. “In 2013, more businesses closed up shop than opened shop. It’s because we have an economic experiment that isn’t working. Let’s return to a proven Kansas model of growing our economy, and that’s how we’re going to help Kansas.”

Many of Gov. Brownback’s critics foresaw htis outcome. The question is whether or not the hardline Republican can convince voters that, “The sun is shining in Kansas and don’t let anybody tell you any different.”

What about the numbers? Will they say anything different, or will they reveal the sunshine?

Right.

Josh Barro explains:

Kansas has missed its tax revenue targets again, and the state is in for new fiscal pain as a result.

You may recall that Kansas gained national attention back in June because it had cut income taxes and lost a lot more revenue than lawmakers had anticipated. For fiscal year 2014, which ended on June 30, the state collected $330 million less in taxes than it had forecast, and $700 million less than it had collected in the prior year.

Those are big numbers in a state that spends about $6 billion annually from its general fund, and the revenue weakness led both Moody’s and Standard & Poor’s to cut Kansas’ credit rating this year.

Steve Stotts, who goes by the official title Director of Taxation, blamed the Beltway, telling legislators that a federal tax cut encouraged some Kansans to attempt a capital gains maneuver in order to reduce their tax bills.

Perhaps he had a point. Only the future could answer that question. In the first quarter of FY2015, which Kansas started in July, saw revenue projections overestimated by more than ten percent, a comparatively outsized deviation twice the size of the other thirteen states that have reported such numbers.

Still, though, part of the problem is that S-corporations and LLCs have a unique tax structure that essentially allows business owners to pass through their income from business to personal side in order to escape taxes almost entirely.

In other words, there isn’t much different about the idea that Kansans don’t like paying taxes. The problem with the Brownback plan is that there are many who pretty much don’t have to. Former budget director Duane Goossen explained to Barro, “You have every incentive to push your salary down and take all of your income as profit.”

And with yet another tax cut slated for January, Director Stotts, in his own words, “can’t tell you how much” the revenue projections will fall. Barro attempts to pick up the slack, but it’s a complicated mess:

If personal income tax revenues continue to fall short by 10 percent, that will add $250 million to the state’s budget gap. Bear in mind, even before the summer revenue miss, the state’s legislative research department expected the budget to be out of balance by $350 million, a gap that would be covered by drawing down all but $29 million of the state’s remaining reserve funds. Since the reserves are already scheduled to be nearly depleted, the Kansas legislature will have to respond to any cut in the revenue estimates by raising taxes or cutting spending in the current year.

There could be even bigger problems to come, because Kansas’ income tax estimates for the next nine months are actually more optimistic than this summer’s were. In fiscal year 2014, Kansas collected 26 percent of its personal income taxes in the summer quarter. But in forecasting this fiscal year’s revenues, Kansas attributed only 23 percent of expected annual personal income tax revenue to the summer — and then missed its projection anyway. If summer revenues make up 26 percent of total revenues, as they did last year, the state will be short by closer to $500 million than $250 million. And in addition to needing to close this year’s gap, the state will start deeper in the hole for fiscal year 2016, for which it already has a projected budget shortfall of $240 million.

Revenues from corporate income taxes might help; Barro notes the volatility of corporate tax projections and even points to an occasion in Delaware where a single unexpected tax payment increased the state budget by one and a half percent. For the Brownback experiment, this is a little like winning the lottery; the only question is how long the Sunflower State can afford to keep buying tickets.

The only real Kansas miracle here is that the latest polling averages suggest the incumbent Republican might actually be on the winning edge of what otherwise appears to be a dead heat.

It would be one thing to suggest that Kansans deserve what they get, but two factors speak against such judgment. In a larger context, what happens in Kansas or any other state will eventually start affecting the rest of the nation. More immediately, however, we should at least recognize that there are innocent people in Kansas who never asked for this and simply haven’t the resources to pack up and get the hell out of the way.

Same thing with the Kansan hatred of science and celebration of Christian terrorism. It would be just fine to leave them to it, but not everyone in Kansas is guilty.

____________________

Gonyea, Don. “A Promise Fulfilled Upends Kansas Governor’s Race”. All Things Considered. 11 September 2014.

Barro, Josh. “Kansas Faces Additional Revenue Shortfalls After Tax Cuts”. The Upshot. 22 October 2014.

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