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Archive for Sunday, November 24, 2013

The Brownback Experiment: hard to measure

November 24, 2013

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— Gov. Sam Brownback has said his tax changes will be like an adrenaline shot to the Kansas economy.

But tax experts who have studied the Brownback plan say there will be no sudden surges from Brownback's tax policy, and it will be difficult to tell what effect the changes will make.

"We'll never now for sure whether Kansas specifically experienced significant gains as a result of this policy," said Justin Ross, assistant professor in the School of Public and Environmental Affairs at Indiana University.

Ross and Carolyn Bourdeaux, an associate professor of public management and policy at the Andrew Young School of Policy Studies at Georgia State University, analyzed Brownback's tax changes for a recent conference at Kansas University sponsored by the Institute for Policy and Social Research.

Brownback has pushed for and succeeded in cutting income tax rates and giving certain business owners an income tax holiday.

The Republican governor has said these changes will modernize the state tax system in a way that will stimulate economic growth while providing the necessary tax funds to pay for what he deems core government functions.

Appearing last year on MSNBC's Morning Joe, Brownback explained what he wanted to do.

"On taxes, you need to get your overall rates down, and you need to get your social manipulation out of it, in my estimation, to create growth. We’ll see how it works. We’ll have a real live experiment," Brownback said.

But Ross said what is happening in Kansas doesn't fit the definition of an experiment because the results cannot be ascertained.

The problem, Ross said, is that unlike an experiment, the tax changes aren't isolated in a controlled environment to determine their impact.

Numerous forces affect the economy, he said. If Kansas experiences significant growth, can it be traced to the tax changes? If the economy sours, could it be argued the downturn would have been worse but for the tax changes?

For the operation of state government, however, the tax changes have a real fiscal impact.

Over a six-year period, the State Treasury will lose about $3.8 billion, according to the Kansas Legislative Research Department. Considering that the state spends about $5.9 billion per year, the loss of $3.8 billion over six years represents a big chunk of the budget.

The effect of Brownback's tax changes on the state budget concerns Bourdeaux.

"It seems Kansas decided to jump in all at once without having a strategy on the investment side," she said.

She said the tax cuts will produce a small economic "lift" but the reductions in spending will cost the economy. "When you cut state expenditures, that is money that was going to be spent in your state. If you cut education, that has a strong long-term economic impact," she said.

She said state taxing and spending is generally small relative to the overall size of state economies.

Kansas Gross Domestic Product in 2012 was $139 billion while state revenues were in the $6 billion range.

Below are the tax changes enacted over the past two years.

Individual income taxes

Collapses the three-bracket structure for individual income taxes of 3.5 percent, 6.25 percent and 6.45 percent, into two brackets of 3 percent and 4.9 percent.

In tax year 2014, the individual income tax rate for the bottom bracket is cut from 3 percent to 2.7 percent, and the top rate of 4.9 percent is cut to 4.8 percent. In tax year 2015, the top bracket is cut to 4.6 percent. The two brackets will be 2.4 percent and 4.6 percent in tax year 2016; 2.3 percent and 4.6 percent in tax year 2017; 2.3 percent and 3.9 percent in tax year 2018.

Further tax cuts could take effect as early as tax year 2019 if tax sources increase by 2 percent or more over the previous year.

Kansas standard deduction levels for married taxpayers filing jointly and for single heads of households reduced to $7,500 and $5,000 respectively, starting in tax year 2013. (Legislation in 2012 had raised both standard deduction levels from $6,000 for married and joint, and $4,500 for heads of household to $9,000.)

Most itemized deductions, such as home mortgage interest, are reduced by 30 percent in tax year 2013; 35 percent in tax year 2014; 40 percent in tax year 2015; 45 percent in tax year 2016; 50 percent in tax year 2017 and thereafter.

Business income exemption

Exempts non-wage business income reported by LLCs, Subchapter-S corporations, and sole proprietorships.

Tax credits

Repeals tax credits for food sales tax rebates, adoption expenses, child and dependent care expenses, childcare expenses, and disabled access expenditures. In addition, renters no longer eligible for homestead property tax refund.

Sales Tax

The state sales set at 6.15 percent on July 1. The rate had been 6.3 percent since July 1, 2010, but was scheduled to decrease to 5.7 percent on July 1 until Brownback signed into law the increase.

Source: Kansas Legislative Research Department.

Comments

Bob Zimmerman 4 months, 3 weeks ago

Hey Lawrence...you better watch out.

Less state funds for KU means declining enrollment (check the last five years) and declining economic activity.

Lawrence is getting pulled into with the rest of the state; which is devolving...going backwards.

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Les Blevins 4 months, 3 weeks ago

Lets don't forget to mention special roads for favored developers hatched up in private and secret meetings between county commissioners and private land owners. Much of the money being taken from the poor, the children and the elderly it seems is being used to degrade and destroy a part of our area's heritage and its natural environment now on the southern edge of town and will continue to do so from now on as we find out how much it will cost to maintain this project and provide the amenities that businesses will want the local taxpayers to put in place along its course over the coming decades.

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Leslie Swearingen 4 months, 3 weeks ago

Well, you know, no one can say what "their" taxes are going for, because everyone pays taxes to come degree and it all goes into the same pot to be portioned out later for whatever it is needed for. Things such as the infrastructure, public safety, education, public services such as gas, sewer and electric lines.

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Dick Sengpiehl 4 months, 3 weeks ago

Adrenaline shot? More like a killing shot to our schools, the poor and disabled, and the arts. And every day we read about some power grab by the Governor. No wonder his polling numbers are so poor.

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Rob Chestnut 4 months, 3 weeks ago

My hope is that the legislature will revisit provisions in the law in the future to measure impact. LLC income exemption as an example. Did I it generate any incremental revenue?

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Michael LoBurgio 4 months, 3 weeks ago

Since 2011 86 of Kansas' 105 counties have been forced to increase property taxes to fill the gap left by reduced state funding, to cover the tax cuts for the rich.

The republicans have tried this to sell us this trickle down economics [Fairy Dust] before and it didn't work then and it won't work now.

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Beator 4 months, 3 weeks ago

I'm not a "tax experts" but, I know better what to do with my money than people in government do. Thanks Brownback. I appreciate you not taking my money.

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Brock Masters 4 months, 3 weeks ago

I understand their point, but in my simplistic view it isn't. Brownback put out a roadmap. We know where he started so let's look at where we are and see if he has been successful.

He said he'd reduce childhood poverty. What was the rate when he took office and what is it today? Has it gone up or down?

Same thing for childhood literacy.

And finally the economy. Are more Kansans working today, earning more and do we have enough tax revenue to sustain essential government programs? Are Kansans paying more or less taxes? I can't speak for all, but I am paying more taxes this year than years past.

It isn't really hard to measure Brownback's performance.

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