Across Kansas editorial writers and candidates for state offices are harshly criticizing the new tax policy passed this year. Editorials with titles like “Tax cut is huge gamble” predict doom and gloom for our state. But we’ve been in the doldrums in Kansas, and reducing taxes is a good first step on the road to recovery for many reasons.
The most fundamental reason we need to reduces taxes in Kansas is that the money people earn belongs first to themselves, not the government. Not everyone believes this. You can tell these people when they talk about the cost of a tax cut. An example is a recent op-ed by KU political science professor Burdett Loomis, when he wrote “We will, however, discover the public costs to disbursing these private benefits.” The political class believes the current level of taxation belongs to them, and any reduction in tax revenue is a cost to government.
The correct view is that government is a cost to taxpayers. Reducing that cost leaves more money in the pockets of people, where it belongs. Reducing taxes is the correct thing to do for this reason.
Another reason to reduce taxes is that it leaves more money in the hands of the private sector. Examples of government waste, fraud, and abuse are everywhere. No one spends money as carefully as their own, so leaving money in the private sector almost guarantees the money will be spent or invested more wisely than sending it to government to spend.
As far as the prediction of drastic cuts in services or the shifting of costs to local property taxes, Kansas Policy Institute has shown that reducing state spending by 6.5 percent in 2013 — and then working to control the rate of increase — will result in a balanced budget. Who doesn’t believe that government can cut spending by that amount and still provide essential services? Kansas employs no budgeting methodologies that have been shown to root out wasteful and unneeded spending. Two examples are zero-based and priority-based budgeting.
Some complain that there is no evidence that cutting taxes will spur economic growth and job creation. An example is from the Loomis op-ed: “There is simply no evidence, nor any studies, to suggest that tax reductions alone can ever generate this kind of economic growth, much of it untaxed.” (Note the lament that the growth won’t be fully taxed.)
We don’t have to look hard to find evidence that low taxes work. We can’t perform controlled experiments regarding states and income tax rates, but we can look at what has happened in the states. There, the results are striking. Analysis in the current edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index shows that low taxes are conducive to economic growth: “When it comes to growing gross state product (GSP), the [states with no personal income tax] have, on average, outperformed those states with the highest rates by 39.2 percent over the past decade. They have also outperformed the U.S. average by 25.6 percent. Additionally, not even one state in the high tax rate group performed as well as the average no personal income tax state.”
We also need to face the grim realization that the Kansas economy has not been performing well. Rich States, Poor States evaluates state economies two ways. The “Economic Outlook Ranking” is a forecast looking forward. It is based on factors that are under control of the states. The “Economic Performance Ranking” is a backward-looking rating that measures state performance, again using variables under control of each state.
For Economic Performance Ranking, Kansas is ranked 39 among the states, near the bottom in terms of positive performance. In the 2010 edition, Kansas was ranked 40th, and in 2010, 34th. Kansas is not making progress in this ranking of state performance.
In the forward-looking Economic Outlook Ranking, Kansas ranks 26th. Again, Kansas is not making progress, compared to other states. In annual rankings since 2008 Kansas has been ranked 29, 24, 25, 27, and now 26.
Recently the Tax Foundation released a report that examines the tax costs on business in the states and in selected cities in each state. The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms. The report is Location Matters: A Comparative Analysis of State Tax Costs on Business.
The most startling fact, and one that should be a wake-up call to anyone who cares about the future of Kansas, is the uncovering by Kansas Policy Institute that not long ago, Kansas was the only state to have a loss in private sector jobs over a year-long period.
All the spending on schools, highways, and other government programs that are supposed to spur our economy to greatness lead to this: last place. The only state with private-sector job loss. We couldn’t have done worse.
You might think that this evidence would matter to those who care about the future of Kansas. Judging from the flurry of opposing editorials the last month, it doesn’t seem to have an impact.
Kansas will do better by leaving more of its citizens’ resources in the private sector, under their own control. Cutting taxes — and government spending to match — is the way to generate prosperity in Kansas for all of its citizens.