Archive for Monday, April 19, 2010

New study says sales tax better for economy than cuts

A recent study revealed that raises in state sales tax would have better effects on the economy than more spending cuts. Both options will likely result in lost jobs.

April 19, 2010, 3:32 p.m. Updated April 19, 2010, 4:31 p.m.


Kansans weigh budget options

Kansas residents gave their opinions regarding options facing the state legislature as it tries to close the budget gap. Spending cuts and raising taxes are the most likely options. Enlarge video

Related document

Sales Tax Study ( .PDF )

— A sales tax increase would be the best choice among several bad options to fix the current budget crisis, according to a study released Monday.

“This study shows there are no easy choices, but the solution that causes the least economic damage is a revenue enhancement,” said Bernie Koch, executive director of the Kansas Economic Progress Council, which is a not-for-profit business organization that requested the study.

The analysis showed that a one-cent sales tax increase would have less of a negative impact on the economy than cutting the state budget by $350 million.

The information lands in the middle of a hotly contested debate over taxes and budget cuts. The Kansas Legislature faces an estimated $510 million shortfall when it returns for the wrap-up session that starts April 28.

Having already cut nearly $1 billion from what was once a $6.4 billion budget, Gov. Mark Parkinson, a Democrat, has proposed a temporary increase in the state sales tax from 5.3 cents per dollar to 6.3 cents per dollar, which would generate approximately $350 million.

The new study showed that $350 million more in budget cuts would result in the loss of 5,177 jobs across the state. A $350 million sales tax hike would also result in the loss of jobs -- 3,231. But if the one-cent sales tax was combined with no further budget cuts then nearly 2,000 jobs could be maintained, the study said.

The study gave several reasons why a sales tax increase would have less of a negative impact than state cuts. These include:

-- A high percentage of government spending initially stays within the state’s economy;

-- The tax increase spreads the negative effects throughout the state, while cuts would fall heaviest on a small percentage of residents, such as state employees;

-- Visitors to the state will pay a portion of the sales tax increase.

The study also showed that a sales tax increase would burden low-income households more, and that the average Kansas household would pay an additional $266 per year in sales taxes.

The study said that with the proposed one-cent state sales tax increase, Kansas would move up from 23rd to ninth in the nation in its combined state and average local sales tax rate. But the study noted that ranking could be outdated quickly because many states are considering tax increases.

The study was done by John Wong, interim director of the Center for Urban Studies, Kansas Public Finance Center at Wichita State University. He is a member of the Consensus Revenue Estimating Group, which provides revenue projections for the Legislature to follow.

Koch, with the Kansas Economic Progress Council, said the impetus for the study came after testimony by Art Hall, director of the Center for Applied Economics at the Kansas University School of Business. Hall testified that a sales tax increase would cost over 19,000 jobs statewide.

“We decided to seek a second opinion,” Koch said.

Wong said he wasn’t advising the Legislature on what to do. He said the study simply shows what might happen under different scenarios.


consumer1 7 years, 11 months ago

I don't put much stock in studies, they are too easily skewed to achieve the desired results of the agency agenda.

Andrew Juby 7 years, 11 months ago

So examine the study, find the flaws in it, understand the weaknesses. Just ignoring scientific studies because you don't like the results is a horribly irresponsible way to act.

John Hamm 7 years, 11 months ago

"Lies, Damn lies and statistics." unknown author

remember_username 7 years, 11 months ago

Mark Twain said, if I recall, "there are lies, damn lies, and then there are statistics".

John Hamm 7 years, 11 months ago

No, he made it popular. It was in use before then.

bruno2 7 years, 11 months ago

Sales taxes are regressive, pure and simple. They hit those least able to afford them the hardest. Some would argue that the wealthy would pay more because they buy more. True, but if you have barely enough for a loaf of bread a higher sales tax could mean no bread, a choice the wealthy could only compare with a decision as to which model of Mercedes to by. KS' sorry budget state is a direct result of Republican tax cuts for their wealthy supporters. Just roll back those cuts and the deficit disappears. Not a chance you'll hear an elephant suggest that!

situveux1 7 years, 11 months ago

I agree. I don't understand instituting a regressive sales tax to try and save services to the needy. The majority of that money is coming from those that you claim need it the most. Doesn't make any sense what-so-ever.

beatrice 7 years, 11 months ago

Sometimes, I really hope karma is real.

IndusRiver 7 years, 11 months ago

Just don't call the legislation "a fraud" before you sign it, Governor! You know, like you did with the smoking ban.

texburgh 7 years, 11 months ago

A little clarification for IndusRiver:

The governor did not call the smoking ban he signed "a fraud." He called Brenda Landwehr's alternative smoking ban bill that was no ban at all a fraud when he announced he would veto that one if that's what was sent to his desk.

Learn the facts, please.

situveux1 7 years, 11 months ago

Ok, now that I've scanned the study somewhat, it basically says two things.

  1. If state spending is cut, they estimate 5,177 jobs lost, 2,786 of which would be local and state government jobs.

  2. If the sales tax was increased, it would result in the loss of 3,231 jobs, all of which appear to be private jobs. This part of the study just says the tax is increased and ignores any additional spending

Thus, the study then puts its hands together and says if you increase taxes and then spend the money, you eliminate 3.231 private sector jobs to save 5,177 jobs, most of which are government jobs. That's a net jobs saved of just under 2,000.

So, the study claims that government spending results in more jobs than private sector spending.

That could be true, but if was desirable I don't know why we stop at a 1% tax increase. Why not go 3 or 5% and really get the economy going?

geekyhost 7 years, 11 months ago

I assumed they were only talking about government jobs, since they specified no further budget cuts. The previous jobs would be ones lost with the last round of cuts. Perhaps I misread.

It is quite true that during tough times, the government is often the only institution with enough spending power to kick-start the economy again. That said, a regressive tax isn't the way to fund it. We should have been saving for hard times all along, but instead we like to cut taxes during good times as if they'll never end.

exactexpress 7 years, 11 months ago

$510 million is less than 5% of the budget. Just cut the budget by 5% across the board and be done with it. I would imagine there are some bloated salaries that could be adjusted to cover most of the budget short-fall. Private industry has made the necessary cuts to keep their doors open, government can do the same. Where I work 25% of my department’s employees were escorted out the door over the past year, those left took a 10% decrease in wages and an additional 13% in December and January (Merry Christmas), and now you want to raise sales taxes by 17.8%??? It’s not just a penny!!! Kansas and many Kansans are hurting, unemployment is increasing. It is time to stop the bleeding by one tax increase at a time. And since when has any tax increase been temporary?

jmadison 7 years, 11 months ago

Which specific entities make up the KEPC? Their website is uninformative as to which specific businesses and groups fund this non-profit.

Richard Heckler 7 years, 11 months ago

Every time new water lines are installed that is a tax increase.

Every time more square miles are annexed that is a tax increase

Every time the LPD expands in any way that is a tax increase

The more Lawrence retail expands in size the more flooded the market becomes and this is a tax increase.

USD 497 expanded sports facilities aka PLAY = a tax increase

Cutting taxes is not productive for there is no evidence that cutting taxes produces significant employment.

Tax rebates are not productive for there is no local evidence that this retains any substantial employment and local taxpayers must make up the tax dollar loss.

Reducing city staff and state level staff is not productive for there is no evidence that this has any long term impact as to reducing the cost of operations. Taxes increase annually in spite of reducing employment levels. Layoff's also reduce the spending throughout the local economy thus tax and user fees increase to make up the loss.

"Privatization"(a bogus term) is not productive for there is no evidence that "Privatization" reduces taxes. "Privatization" relies on tax dollars.

All of the above is regressive yet garner a fair amount of support in spite of the fact taxpayers are not allowed to vote on the matters.

situveux1 7 years, 11 months ago

So, how much should we increase taxes then?

deskboy04 7 years, 11 months ago

It seems like this was a non-biased study that many of you are responding to.

exactexpress 7 years, 11 months ago

From their web site: "The first major issue KEPC got involved in was for the defeat of the Taxpayers Bill of Rights and Taxpayer Empowerment Act. KEPC opposes TABOR amendments and TABOR like statutes believing them to be detrimental to the future of Kansas, particularly those government services vital to a healthy economy and high quality of life." This does not sound non-biased to me. They wanted a report that supported the tax increase and that is pretty much what they got.

Flap Doodle 7 years, 11 months ago

I don't think killing private economy jobs in order to pad the government payroll is a wise idea.

just_another_bozo_on_this_bus 7 years, 11 months ago

The economy really doesn't care whether individuals spending money get it from a government or a private paycheck-- the money circulates, and recirculates, in the economy just the same.

So whether there is a tax increase or further budget cuts in order to balance the state's budget really comes down to whether we can cut state services any further.

Unfortunately, that decision will be made by a legislature packed with Republicans who see no value in anything government does, simply because the government does it.

geekyhost 7 years, 11 months ago

Straw man argument.

Nobody's proposing a complete government takeover of all industry or the funding of pure busywork. What they are proposing is that we keep current funding for education, disability services, etc. The funding goes to services that would not be filled by private industry and would be a lot more beneficial to society than a filled-in ditch.

just_another_bozo_on_this_bus 7 years, 11 months ago

I said it doesn't matter where the money comes from, not that it doesn't matter what people do.

"Thats not to say that there is no value provided by any government worker, but much of what government does drains from the economy and does not add value."

I agree-- most of it is funneled to Wall Street and the Defense Dept.

IndusRiver 7 years, 11 months ago

Landwehr, chair of the House Health and Human Services Committee, asked for more time to craft a compromise. Her committee had an alternative that would have permitted smoking in restaurants and bars in designated areas and would have pre-empted local ordinances, such as the one in Lawrence. Parkinson had called that bill a “fraud” and supporters of a ban said they were tired of waiting. The issue has been debated off and on for four years by the Legislature.

IndusRiver 7 years, 11 months ago

Could just be the way it was written, but it's still a fraud to me. If I don't have a "right" to smoke then I can't explain how I've gotten away with it for 40 years.

How about if we legislate the Behavior Police off our backs?

kansasmutt 7 years, 11 months ago

More taxation. I wish i could just say gimmie more money. .1 per every 1.00 A 1 cent hike is like asking your boss for a raise of a penny for every dollar you earn. This is stupid and way out of line when the people of Kansas are just about to lose there homes and lives to greed.Why cant the state leaders understand that the waste needs to be cut too balance the books. I hope all the political leaders in Kansas have enjoyed there ride, because not one will be re-elected back to office. Not one has done what the people want, they all are supporting special intrest.

Crikey 7 years, 11 months ago

It sounds different to what we are fed day in and day out by the big money interests who run the papers. If you look at the figures over time the biggest growth in the US has been in the times of highest taxes. Taxes cause corporations to plow money back into the business so as to reduce short term profit. Better business better service and more stable growth. No boom and bust cycles. The taxes are spent by the government who buys services and goods so the money goes around and does something useful and employs people.. Better times are stable under this way of stimulating economy.

Cut taxes and the money gets drawn out of the system as quick excess profit and concentrated in the hands of a smaller group running the credit/investment market. They produce nothing but profit highly consolidating their wealth which comes from the rest of us

Look at your history and in particular look at the tax rates and accumulation of wealth.. Cut taxes and you get a down hill slide to wealth distribution which is very hard to recover from. Big money concentrates to fewer who control what is happening on the political scene. The saddest thing is how Americans are brainwashed. Money does not trickle down. Taxes redistributes wealth for all as it is spent back into the community for all small business to profit by.

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