Voice For Liberty

Tag: Kansas legislature

Articles about the Kansas legislature, both the House of Representatives and the Senate.

  • Kansas legislative summary documents available

    Kansas Legislative Research Department has completed its summaries of the 2012 session of the Kansas Legislature.

    The documents are available at Reports and Publications. The publications include these:

    2012 Preliminary Summary of Legislation March 30, 2012. This document contains summaries — rather detailed, actually — of selected bills through the publication date. Two supplements follow.

    2012 Preliminary Summary of Legislation — Supplement April 4, 2012

    2012 Preliminary Summary of Legislation — Supplement II June 6, 2012

    There is also a shorter highlights document, 2012 Legislative Highlights.

  • In Kansas, there are ways to reduce the cost of government

    Recently-passed tax reform in Kansas has lead to fear that the state will suffer large deficits in upcoming years and will have to cut services like education and social services. There are many ways, however, that Kansas government can save money and still provide the essential services that Kansans rely on. One way is to improve the budgeting process.

    Something else Kansas needs to do is improve the operations and reduce the cost of state government. In 2011 the Kansas Legislature lost three opportunities to do just this. Three bills, each with this goal, were passed by the House of Representatives, but each failed to pass through the Senate, or had its contents stripped and replaced with different legislation.

    Each of these bills represents a lost opportunity for state government services to be streamlined, delivered more efficiently, or measured and managed. These goals, while always important, are now essential for the success of Kansas government and the state’s economy.

    Kansas Streamlining Government Act

    HB 2120, according to its supplemental note, “would establish the Kansas Streamlining Government Act, which would have the purpose of improving the performance, efficiency, and operations of state government by reviewing certain state agencies, programs, boards, and commissions.” Fee-funded agencies — examples include Kansas dental board and Kansas real estate commission — would be exempt from this bill.

    In more detail, the text of the bill explains: “The purposes of the Kansas streamlining government act are to improve the performance, streamline the operations, improve the effectiveness and efficiency, and reduce the operating costs of the executive branch of state government by reviewing state programs, policies, processes, original positions, staffing levels, agencies, boards and commissions, identifying those that should be eliminated, combined, reorganized, downsized or otherwise altered, and recommending proposed executive reorganization orders, executive orders, legislation, rules and regulations, or other actions to accomplish such changes and achieve such results.”

    In testimony in support of this legislation, Dave Trabert, President of Kansas Policy Institute offered testimony that echoed findings of the public choice school of economics and politics: “Some people may view a particular expenditure as unnecessary to the fulfillment of a program’s or an agency’s primary mission while others may see it as essential. Absent an independent review, we are expecting government employees to put their own self-interests aside and make completely unbiased decisions on how best to spend taxpayer funds. It’s not that government employees are intentionally wasteful; it’s that they are human beings and setting self-interests aside is challenge we all face.”

    The bill passed the House of Representatives by a vote of 79 to 40. It was referred to the Senate Committee on Federal and State Affairs, where it did not advance.

    Privatization and public-private partnerships

    Another bill that did not advance was HB 2194, which in its original form would have created the Kansas Advisory Council on Privatization and Public-Private Partnerships.

    According to the supplemental note for the bill, “The purpose of the Council would be to ensure that certain state agencies, including the Board of Regents and postsecondary educational institutions, would: 1) focus on the core mission and provide goods and services efficiently and effectively; 2) develop a process to analyze opportunities to improve efficiency, cost-effectiveness and provide quality services, operations, functions, and activities; and 3) evaluate for feasibility, cost-effectiveness, and efficiency opportunities that could be outsourced. Excluded from the state agencies covered by the bill would be any entity not receiving State General Fund or federal funds appropriation.”

    This bill passed by a vote of 68 to 51 in the House of Representatives. It did not advance in the Senate, falling victim to a “gut-and-go” maneuver where its contents were replaced with legislation on an entirely different topic.

    Opposing this bill was Kansas Organization of State Employees (KOSE), a union for executive branch state employees. It advised its “brothers and sisters” that the bill “… establishes a partisan commission of big-business interests to privatize state services putting a wolf in charge of the hen house. To be clear, this bill allows for future privatization of nearly all services provided by state workers. Make no mistake, this proposal is a privatization scheme that will begin the process of outsourcing our work to private contractors. Under a privatization scheme for any state agency or service, the employees involved will lose their rights under our MOA and will be forced to adhere to the whims of a private contractor who typically provides less pay and poor benefits. Most workers affected by privatization schemes are not guaranteed to keep their jobs once an agency or service is outsourced.”

    Note the use of “outsourcing our work.” This underscores the sense of entitlement of many government workers: It is not work done for the benefit of Kansans; to them it is our work.

    Then, there’s the warning that private industry pays less. Most of the time representatives of state workers like KOSE make the case that it is they who are underpaid, but here the argument is turned around when it supports the case they want to make. One thing is probably true: Benefits — at least pension plans — may be lower in the private sector. But we’re now painfully aware that state government has promised its workers more pension benefits than the state has been willing to fund.

    Performance measures

    Another bill that didn’t pass the entire legislature was HB 2158, which would have created performance measures for state agencies and reported that information to the public. The supplemental note says that the bill “as amended, would institute a new process for modifying current performance measures and establishing new standardized performance measures to be used by all state agencies in support of the annual budget requests. State agencies would be required to consult with representatives of the Director of the Budget and the Legislative Research Department to modify each agency’s current performance measures, to standardize such performance measures, and to utilize best practices in all state agencies.” Results of the performance measures would be posted on a public website.

    This bill passed the House of Representatives by a nearly unanimous vote of 119 to 2, with Wichita’s Nile Dillmore and Geraldine Flaharty the two nay votes. In the Senate, this bill was stripped of its content using the “gut-and-go” procedure and did not proceed intact to a vote.

    Opposition to these bills from Democrats often included remarks on the irony of those who were recently elected on the promise of shrinking government now proposing to enlarge government through the creation of these commissions and councils. These bills, however, proposed to spend modest amounts increasing the manageability of government, not the actual range and scope of government itself. As it turns out, many in the legislature — this includes Senate Republicans who initiated or went along with the legislative maneuvers that killed these bills — are happy with the operations of state government remaining in the shadows.

    These proposals to scale back the services that government provides — or to have existing services be delivered by the private sector — mean that there will be fewer government employees, and fewer members of government worker unions. This is another fertile area of gathering support for killing these bills.

    State workers and their supporters also argue that fewer state workers mean fewer people paying state and other taxes. Forgotten by them is the fact that the taxes taken to pay these workers means less economic activity and fewer jobs in the private sector. And, in fact, Kansas has seen the number of government workers — at all levels — rise.

    As to not wanting performance measures: Supporters of the status quo say that people outside of government don’t understand how to make the decisions that government workers make. In one sense, this may be true. In the private sector, profitability is the benchmark of success. Government has no comparable measure when it decides to, say, spend some $300 million to renovate the Kansas Capitol. But once it decides to do so, the benchmark and measurement of profitability in executing the service can be utilized by private sector operators. Of course, private contractors will be subject to the discipline of the profit and loss system, something again missing from government.

  • Reducing Kansas taxes and government footprint

    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.

  • In Kansas, redistricting went well, after all

    The Kansas political class is upset because a federal court drew new districts they way they should be drawn — compactly and contiguously, and also considering communities of interest.

    The court, in its opinion, explained: “we have developed new legislative maps that distribute population as evenly as practicable between districts, while also considering to a much lesser degree the state’s legislative policies guiding redistricting.”

    In drawing Congressional districts the court took into consideration the Roeck score, a measure of compactness.

    What the court has done is to ignore the desires of the political class. The legislature’s consideration when attempting redistricting was all politics, all the time. Incumbents were protected and not pitted against each other. The residencies of potential challengers to incumbents were considered. The infighting was so protracted that the legislature failed to produce new districts, and is said to have affceted progress on other important legislation.

    It’s good the court didn’t consider the entrenched political class, because they don’t count. The legislature should not be run as a club. Said the court: “We have subordinated protection of incumbents to other state policy factors and, of course, to the constitutional requirement of one person, one vote. … any efforts to protect incumbents would require our choosing among incumbents, an inherently political exercise that we are neither able nor inclined undertake.”

    In creating the new districts for the Kansas House and Senate, the court — unintentionally — imposed a rough and not complete one-time implementation of term limits. In the House, there are 48 districts with more than one incumbent and 25 districts with no incumbent. This means a lot of turnover, which is good. We need fewer professional politicians and more citizens in legislatures. This is not as large a problem in Kansas as in the U.S. Congress, as our legislature meets for four months each year, and legislators are pretty much regular citizens the remainder of the year. But still, the redistricting battle has reminded us that there is indeed a political class in Kansas that believes it is entitled to office, term after term.

    Further evidence of an entrenched political class is the number — five at current count — of incumbents who moved their residence in order to run.

    I believe that Kansans will appreciate the large number of new members that are likely to take office next January. Hopefully the new members will realize the benefit themselves and implement term limits in Kansas. That would require an amendment to the constitution, which requires a two-thirds vote of each chamber of the legislature. Then, the people would have to pass the amendment by a simple majority. It’s quite likely that voters would approve term limits, as they are consistently popular with voters.

    Kansas Governor Sam Brownback does not play a formal role in passing constitutional amendments. His involvement would be to exercise his influence. Brownback, when elected to the U.S. Senate, imposed a two-term limit in himself, and he held true to that pledge. He has spoken in favor of term limits for members of Congress.

  • Kansas pension debate based on false premise?

    As Kansas has struggled to find a solution to the underfunded Kansas Public Employee Retirement System, or KPERS, a possibly false argument has been used against the desirability of moving to a defined contribution pension system.

    The system that has been in place in Kansas is a defined benefit system. Employees are guaranteed a monthly payment based on factors such as length of employment, salary, etc. The problem is that over the years, the state has not allocated enough funding to pay for the promised benefits. Many wanted the state this year to end the defined benefit plan for new employees, and instead enroll them in a defined contribution plan. In these plans, employees and employers make contributions to an account in the name of the employee. Contributions and investment earnings provide a benefit upon retirement. These plans, known as 401(k) plans, are common in the private sector.

    Critics of a move to a defined contribution plan, including the Wichita Eagle editorial board, warned that without new employees entering the defined benefit plan, it would fall farther behind in funding. (See KPERS problems must be confronted.)

    These “transition costs” were seen by many to be a powerful argument against a transition to a defined contribution plan. Perhaps as a result, Kansas adopted a hybrid plan where employees are guaranteed a minimum investment return on their contributions. While the guaranteed return is lower than the return KPES had been assuming, it still binds the state to provide a level of payments that it — if past history is a guide — may not be willing to fund.

    But new research shows that these transition costs — the main argument against moving to a defined contribution plan — are largely a myth, perpetuated by those who benefit from the status quo in public worker pensions plans. Andrew G. Biggs summarizes this research below, writing “Public-sector employees and the pension industrial complex are using deceptive and self-serving arguments despite having an obligation to provide the public with solid facts.”

    Public-Sector Pensions: The Transition Costs Myth

    Public-sector employees and the pension industrial complex are using deceptive and self-serving arguments despite having an obligation to provide the public with solid facts.
    By Andrew G. Biggs

    One essential difference between traditional defined-benefit (DB) pensions and newer 401(k)-style defined-contribution (DC) plans is that DC plans can’t generate unfunded liabilities. Under a DB plan, the employer promises employees a fixed retirement benefit regardless of how the plan’s investments fare. In a DC plan, by contrast, employers promise employees a fixed contribution, say, 5 percent of salary. Once that contribution is made, the employer’s obligation is fulfilled.

    DB pensions for state and local government employees are underfunded by between $700 billion and $4 trillion, depending on whose accounting you use. Most economists believe the latter figure is more accurate. In response, elected officials around the country are considering shifting public employees to DC plans.

    Public-sector employees — who enjoy their generous retirement benefits — and the pension industrial complex of plan managers, pension actuaries, and investment advisors don’t like DC plans. They’re pushing back with a novel argument: DB pensions’ massive unfunded liabilities create “transition costs” that make shifting to DC plans unfeasibly expensive. In other words, the more broke DB plans become, the more we have to stick with them.

    But as University of Arkansas economist Bob Costrell shows in a new report for the Laura and John Arnold Foundation, that argument doesn’t hold water.

    Continue reading at The American, the online magazine of the American Enterprise Institute.

  • Kansas STAR bonds vote tests beliefs in capitalism, economic freedom

    An upcoming vote in the Kansas Legislature, possibly today, will let Kansans know who is truly in favor of economic freedom, limited government, and free market capitalism — and who favors crony capitalism instead.

    The bill is Senate Substitute for HB2382: AN ACT concerning economic development; concerning the STAR bonds financing act; relating to the provisions regarding STAR bond projects; extending the sunset date. Under current law, the Kansas STAR bonds program will expire on July 1, 2012. This bill extends the program’s life for five years.

    The STAR bonds program allows increases in sales tax revenue to be directed to private interests rather than feeding the state treasury. The mechanism is that local governments like cities can sell bonds and give the proceeds to developers. Then, increments in sales tax revenues are used to make bond payments.

    In economic impact and effect, the STAR bonds program is a government spending program. Except: Like many spending programs implemented through the tax system, legislative appropriations are not required. No one has to vote to spend on a specific project. Can you imagine the legislature voting to grant $50 million over a period of years to a proposed development in northeast Wichita? That doesn’t seem likely. Few members would want to withstand the scrutiny of having voted in favor of such blatant cronyism.

    But under stealth-like tax expenditure programs like STAR bonds, that’s exactly what happens — except for the legislative voting part.

    Government spending programs like STAR bonds are sold to legislators as jobs programs. Development, it is said, will not happen unless project developers receive incentives through these spending programs. Since no legislator wants to be seen voting against jobs, many are susceptible to the seductive promise of jobs.

    But often these same legislators are in favor of tax cuts to create jobs. This is the case in the Kansas House, where many Republican members are in favor of reducing the state’s income tax as a way of creating economic growth and jobs. On this issue, these members are correct.

    But many of the same members voted earlier this year for a previous version of the STAR bonds extension bill. (See In Kansas, STAR bonds vote uplifted cronyism over capitalism.) These members voted in favor of a tax expenditure program. These two positions — voting for tax cuts, but voting for targeted spending through the tax system — cannot be reconciled. If government taxing and spending is bad, it is especially bad when part of tax expenditure programs like STAR bonds. And there’s plenty of evidence that government spending and taxation is a drag on the economy.

    It’s not just legislators that are holding these incongruous views. Secretary of Commerce Pat George promoted the STAR bonds program to legislators. This seems to be contrary to the spirit of tax reform plans Kansas Governor Sam Brownback promoted earlier in the session. At that time, he proposed ending spending programs implemented through the tax system. Historic preservation tax credits was a particular program that he wanted to end.

    The danger of false, or “crony” capitalism

    Last year at the time Brownback and a new, purportedly more conservative Kansas House took office, I wondered whether Kansas would pursue a business-friendly or capitalism-friendly path: “Plans for the Kansas Republican Party to make Kansas government more friendly to business run the risk of creating false, or crony capitalism instead of an environment of genuine growth opportunity for all business.” I quoted John Stossel:

    The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

    The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

    But it’s fair to say that crony capitalism created the economic mess.

    But wait, you may say: Isn’t business and free-market capitalism the same thing? Not at all. Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)

    Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.”

    The danger of Kansas government having a friendly relationship with Kansas business is that the state will circumvent free markets and promote crony, or false, capitalism in Kansas. It’s something that we need to be on the watch for. The vote on the STAR bonds project will let us know how our state is proceeding. If the upcoming vote goes as did the earlier votes on this matter, the verdict is clear: Kansas legislators — including many purported fiscal conservatives — prefer crony capitalism over free enterprise and genuine capitalism.

    The problem

    Government bureaucrats and politicians promote programs like STAR bonds as targeted investment in our economic future. They believe that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Kansas economy.

    Arnold Kling has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    Despite this knowledge problem, Kansas legislators are willing to give power to bureaucrats in the Department of Commerce (along with local government officials and bureaucrats) who feel they have the necessary knowledge to direct the investment of public funds. One thing is for sure: the state and its bureaucrats have the power to make these investments. They just don’t have — they can’t have — the knowledge as to whether these are wise.

    What to do

    The STAR bonds program is an “active investor” approach to economic development. Its government spending on business leads to taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

    Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

    In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Kansas and many of its cities employ: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

    In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

    There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Government spending on specific companies through programs like STAR bonds is an example of precisely the wrong policy.

    We need to move away from economic development based on this active investor approach. We need to advocate for policies at all levels of government that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to not act in most circumstances. But politicians have an irresistible urge to be seen doing something, even though most of what is done is harmful.

  • Kansas tax reform is needed

    In Kansas, lower income tax rates are needed to ensure that Kansas has a bright economic future. Failing to reform income tax rates will mean that Kansas will continue to under-perform other states.

    Why should we care about reducing tax rates? We must remember that taxation is not a voluntary activity. Although it is not fashionable to say this in public, ultimately taxes are collected by coercion or its threat. While those who are (supposedly) enlightened will argue that taxes are like dues paid to belong to a club, or maybe the price we pay to have a civilized society, these arguments are easily dispatched. What, for example, if I don’t want to belong the the “club”? Big government — supported by high taxes — destroys civil society, if by that we mean a society based on liberty and voluntary participation and cooperation. The choice is stark, as explained in the mission statement of the Cato Institute: “In civil society individuals make choices about their lives while in a political society someone else makes or attempts to greatly influence those choices.”

    We also need to recognized the relative productivity of the public and private sectors of the economy. We find over and over that the private sector is more efficient at delivering goods and services than is the government, or public, sector. There are a number of reasons for this.

    First, government spending is filtered through the lens of special interest groups that fight to obtain every dollar they can. This “mining for dollars” is the prime reason why so much effort is spent lobbying government, both at the national, state, and local level. Almost every spending program exhibits the qualities of concentrated benefits and dispersed costs. There is a group, usually relatively small, that will benefit mightily from a spending program. The costs, however, are spread across the entire state, so the cost to each person is small. Sometimes this argument is made explicit, as when advocates for Kansas arts spending said the cost was only $0.29 per person, per year.

    This leads to an imbalance of interest and effort. The small group receiving the concentrated benefit of the spending is highly motivated to press its case and seek victory, while the average citizen sees the 29 cents — if he sees anything at all — and comes to the rational conclusion that it’s easier to pay than fight.

    Repeat this scenario many times, however, and soon the cost to the individual is substantial. This cost, remember, is to pay for spending that benefits special interest groups, and often provides little benefit to society at large. See the video Public Choice: Why Politicians Don’t Cut Spending for more. In the video, Benjamin Powell concludes: “This is the logic of politics, and this is why we end up with more spending than the average voter wants.”

    Second: Government doesn’t have the same profit motive that the private sector has. While most people want government to do some things that the private sector might not do on its own, such as caring for the sick and disabled, there a difference between government paying for a service and government providing the service. In government, spending programs are usually looked on as jobs programs. Politicians crow over how many jobs the program creates, and the more jobs, the better. In the private sector, however, different motivations come into play. There, efficiency is valued and rewarded by profit.

    Some do not recognize the beneficial effect of the profit motive, using arguments that say private for-profit companies can’t provide adequate care for disabled people. They argue that these companies will short-change patients on their care so that they can earn more profit. This, however, misunderstands how profits are earned, which is by providing a good or service which is valued by the customer, and doing that efficiently enough that something is left over after costs are paid. In competitive markets — and we must see that these exist — customers can switch to other suppliers if they don’t get what they want or contracted for. This benefits customers, which in this case, is the state in purchasing services for its citizens.

    There’s also no reason to think that government bureaucrats are immune from the profit motive. Bureaucrats benefit through expansion of the budgets and power spheres. Most seek to expand both.

    Results from other states

    While we can’t perform controlled experiments regarding states and income tax rates, 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.”

    Besides this, low tax rates are good for government budgets, too, finds the authors of Rich States, Poor States: “You may be surprised to learn that the growth premium of the no personal income tax states also benefits the public treasury. The average growth of all state and local tax revenues over the past decade was 51 percent. Interestingly enough, the no personal income tax states saw their state revenue grow 81.7 percent faster than that of the nine highest personal income tax states. Clearly, private sector growth matters a great deal for government revenues. Leaders of states with the highest rates ought to reconsider: If the rates don’t result in more money (relative to the no personal income tax states), then why are they so high?”

    Kansas compared to other states

    In the Rich States, Poor States analysis, Kansas does not perform 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.

    Kansas will do better by leaving more of its citizens’ resources in the private sector, under their own control. Cutting taxes — and then government spending — is the way to generate prosperity in Kansas for all of its citizens.

  • Kansas could grow with lower taxes

    As Kansas prepares to reduce its income tax rates, there are those such as Wichita Eagle editorial board who urge caution before proceeding with reducing taxes. Others will claim that government taxation and spending are the driving forces behind growing the Kansas economy. An example is the motto of the Kansas Economic Progress Council, which is “… because a tax cut never filled a pothole, put out a fire or taught a child to read.”

    Two research papers illustrate the need to reduce taxes in Kansas, finding that high taxes are associated with reduced income and low economic growth. Research such as this rebuts the presumption of government spending advocates that reducing taxes will kill jobs in Kansas.

    One paper is The Robust Relationship between Taxes and U.S. State Income Growth by W. Robert Reed, published in the National Tax Journal in March 2008. The abstract to this paper states:

    I estimate the relationship between taxes and income growth using data from 1970 – 1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five-year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state-specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship. (emphasis added)

    In his introduction, Reed writes that previous studies had found: “To the extent a consensus exists, it is that taxes used to fund transfer payments have small, negative effects on economic activity.” His paper found a stronger relationship.

    Reed issues a caution on the use of his conclusions: “It needs to be emphasized that my claim for robustness should be understood as applying only within the context of U.S. state income growth. It should not be interpreted as being more widely applicable to other contexts, such as employment growth, manufacturing activity, plant locations, etc., or to the relationship between taxes and income growth outside the U.S.”

    This illustrates one of the ways we focus on the wrong measure of growth. Politicians focus on jobs. But to business, jobs are a cost. One of the better goals to seek, as Art Hall specifies in his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, is income growth, along with population density and population migration, productivity growth, capital investment, gross business starts and expansions, and customer service and throughput measures of state economic development agencies. Hall writes: “If Kansas performs well in the measures provided, it will also perform well in terms of job count.”

    Another example of research finding a negative impact of taxation is State Taxes and Economic Growth by Barry W. Poulson and Jules Gordon Kaplan, published in the Winter 2008 Cato Journal. In the introduction to the paper, the authors write: “The analysis reveals a significant negative impact of higher marginal tax rates on economic growth. The analysis underscores the importance of controlling for regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states.” (emphasis added)

    In its conclusion, the paper states:

    The analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis also shows that greater regressivity had a positive impact on economic growth. States that held the rate of growth in revenue below the rate of growth in income achieved higher rates of economic growth.

    The analysis underscores the negative impact of income taxes on economic growth in the states. Most states introduced an income tax and came to rely on the income tax as the primary source of revenue. Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue. (emphasis added)

  • Kansans uninformed on school spending

    As the Kansas Legislature debates spending on schools, we have to hope that legislators are more knowledgeable about school spending than the average Kansan. Surveys have found that few Kansans have accurate information regarding school spending. Surprisingly, those with children in the public school system are even more likely to be uninformed regarding accurate figures. But when presented with accurate information about changes in school spending, few Kansans are willing to pay increased taxes to support more school spending.

    These are some of the findings of a 2010 survey commissioned by Kansas Policy Institute.

    Not only did Kansans underestimate school spending levels, they did so for the state portion of school funding, and again for the total of all funding sources — state, federal, and local.

    Many people greatly underestimated school funding. For all sources of funding on a per-student basis, 43% of poll respondents chose a number that is less than half the actual number.

    On a question asking about the change in Kansas school funding over the past five years, 64% thought that funding had declined. Only 6% knew that funding had increased by over 15% during that period. The five year time period is significant, as it was in 2005 that the Kansas Supreme Court ordered additional school spending as a result of the Montoy case.

    When asked about their willingness to pay higher taxes to support mores school funding, 51% said they would, if per-pupil funding was down from five years ago. But when asked whether they would pay more taxes in per-pupil funding had gone up by over 20%, only 11% said yes. According to the Kansas State Department of Education, total funding per pupil increased by 26% over this period.

    The survey was conducted by The Research Partnership, Inc., a Wichita-based market research firm. The complete results may be viewed at the Kansas Reporter website at K-12 Public Opinion Survey, or here.

    Survey participants were asked if they would like to make comments regarding funding of Kansas public schools. There are 17 pages of these comments.

    Analysis

    The results of this Kansas poll are similar to recent nationwide results discovered by EducationNext, a project of the Harvard Kennedy School of Government. That study is summarized at Americans uninformed about school spending, study finds. Another study with similar findings is at Kansas school spending: citizens again are uninformed.

    It’s not surprising that Kansans are misinformed about the level of school spending and its changes. Even members of the Kansas House of Representatives and the Wichita School Board are sometimes uninformed, misinformed. It’s either that or we have to conclude they are lying to us.

    The school spending lobby in Kansas focuses on only one measure of school spending, base state aid per pupil. That number is approximately one-third of total school spending, and it has declined. As this study shows, it is in the best interests of the Kansas school establishment for average Kansans to be uninformed about the true levels of school spending. When presented with accurate information about school spending, Kansans are not willing to pay higher taxes.

    We can understand the motivation of schools to lobby for increased spending. But they should be truthful. It’s even worse when newspaper editorial writers don’t recognize the truth. An example is a recent Wichita Eagle editorial written by Rhonda Holman. She repeated the meme of the school spending lobby, writing: “… despite state per-pupil base aid having been slashed to 1999 levels.” Most people don’t know that “base aid” is only one component of Kansas school spending. It’s the starting point for the Kansas school finance formula. After weightings are applied, most school districts receive much more funding than the base aid figure. The Wichita school district, for example, received $6,511 per pupil from the state at a time when base state aid was $4,012. Also, look at the total spending picture: From 1999 to last year, Wichita school spending jumped from $336 million to over $604 million. State aid to this district increased from $200 million to $328 million over the same time.

    It’s also likely that the current school year will see record spending on schools in Kansas.

    So why don’t Holman and the Wichita Eagle use the total spending figures, or even the total state aid numbers? Focusing on one component of Kansas school finance that is not representative of the entire picture is a disservice to Wichita Eagle readers.