Topeka Gov. Sam Brownback’s administration already has developed talking points to deflect anticipated criticism of the newly enacted massive income tax cuts should Kansas face significant budget problems next year.
Critics said their fears about the aggressiveness of the cuts were confirmed by the conservative Republican governor’s budget director in July, when he told state agencies to draft proposals for slicing up to 10 percent of their spending.
Brownback and his allies argue that the tax cuts will stimulate economic activity, generating new tax revenues to more than offset what the state gives up. The governor concedes that economic growth may lag and the state may face some belt-tightening, but he says core services will be preserved.
The administration is fashioning a narrative that suggests budget cuts may be necessary because the nation’s economy may remain stagnant. Europe’s financial crisis also looms as a potential threat.
“There are forces beyond the state’s control,” Brownback spokeswoman Sherriene Jones-Sontag said last week. “There’s still a great deal of uncertainty with the economy.”
The state is decreasing its individual income tax rates for 2013, with the top rate dropping to 4.9 percent from 6.45 percent. Also, the state will exempt the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes.
The Legislature’s research staff projects that the tax cuts will be worth $231 million during the current fiscal year and increase to more than $800 million during the next fiscal year. The collective tax relief over the next six years is estimated at more than $4.5 billion.
The same legislative researchers project that the tax cuts will create collective budget shortfalls approaching $2.5 billion over the next six years.
Brownback’s aides described July’s budget instructions as a planning tool, but signs that significant cuts are a possibility keep popping up. The Department of Commerce announced last week it was ending its long-running Kansas Main Street program — which provided money and support for communities to help preserve small downtown businesses — trimming 18 jobs.
During a state Governmental Ethics Commission meeting, Executive Director Carol Williams warned that one of two staff auditors was at risk of being laid off, and said administrators in other agencies are certain that 10 percent cuts are imminent.
“The biggest force driving his budget problem is the tax cut,” said Kansas Democratic Party Chairwoman Joan Wagnon, a former state revenue secretary, said of Brownback.
Brownback and his allies have argued repeatedly that the projections are too pessimistic about future revenue growth that would come from a boost in economic activity, particularly small businesses.
“This plan simplifies their taxes and helps business owners retain more of their profits, which can then be reinvested in their livelihood or the community,” Revenue Secretary Nick Jordan said in a statement earlier this month.
The administration sees the potential growth to be too promising to reverse course, even when faced with the possibility of trimming the budget.
Still, raising questions about the national or global economy could help the administration as it defends the income tax cuts. The post-9/11 recession in 2002 largely shielded then-GOP Gov. Bill Graves and legislators from recriminations that they’d been too aggressive in cutting taxes during the 1990s.
Similarly, the suddenness and depth of the 2008 financial meltdown all but wiped away questions about whether Democratic Gov. Kathleen Sebelius and lawmakers had risked the state’s long-term financial health by committing to big increases in education spending without raising taxes in 2005 and 2006.
But if legislative researchers are on target in their hotly debated projections, Kansas is already headed toward a long-running budget crisis.
“They’re going to have to work hard to explain the actions they took deliberately,” Wagnon said. “Sherriene can spin it as forces beyond their control, but the truth is this is what they created.”