Archive for Saturday, March 10, 2018

Opinion: Windfalls, gambling and marijuana

March 10, 2018

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Raising revenue is tough, especially in red states.

Kansas tax receipts nose-dived between 2013 and 2016, placing great pressures on public services. The 2017 income tax revisions have staunched the bleeding, and revenues have consistently exceeded estimates since July, to the tune of $275 million. That is good news, and it may well reflect a major revenue rebound for the state.

First, revenue increases have proved resilient and real, in part because the state never had a clear understanding of how many independent businesses actually had their income taxes cut to zero. The conventional estimate was 330,000, but subsequent analysis indicates that the number was more than 400,000. Hence, returning these firms to the tax rolls captures more revenue.

Second, recent federal income tax cuts will likely provide a substantial windfall for Kansas tax collectors. The most important change doubles the standard deduction, thus assuring that far fewer federal returns will include itemized deductions. To date, Kansas has not increased its standard deduction, so more income is subject to Kansas taxation, to the tune of more than $500 million over the next three years.

The sigh of relief you can hear in Topeka comes from legislators’ anticipation that these revenue streams will allow them to address school funding without raising taxes. Although some legislators will seek to “return the windfall,” as in 1989, retaining current rates will make it easier for the Legislature to comply with the Supreme Court’s mandate.

Moreover, the state has huge needs beyond school finance, from funding KPERS to adequately maintaining roads to ending the onerous sales tax on food to supporting KanCare, foster care and the prison system. Legislators are unlikely to raise taxes further, but for Kansas to meet its obligations, more funding is essential.

Bets and Bongs.

Two simple truths: (1) Many Kansans bet on sporting events and/or smoke marijuana; and (2) These common activities produce virtually no funds for the state. Rather, they cost Kansas tens of millions of dollars in law enforcement expenses and the forgone revenues of underground economies.

Americans’ views on legalizing both marijuana and sports betting have grown far more positive over the past quarter-century. In 1990, the public backed sports betting at a 41 percent rate and legalized marijuana at just 16 percent; in 2017, the respective figures were 56 percent (gambling) and, remarkably, 81 percent (marijuana).

Legalizing these behaviors would generate real revenues, but marijuana, both recreational and medical, is the clear winner. By one estimate, national legalization would provide $132 billion in revenues and create about a million jobs if it were in place by 2025. Sports betting, while offering reasonable gains, trails far behind; still, states could help fill their coffers with no increase in taxes, simply by legalizing this everyday activity.

Although the data is thin, the downsides for both these changes appear modest. Increased marijuana consumption tends to reduce alcohol consumption, with its many negative effects, from auto accidents to domestic abuse. In addition, there has never been a documented death from overconsumption of marijuana; nor is it a feared “gateway” to more potent drugs.

Over the next few years, Kansas can enhance revenues and direct spending toward major issues, all the while it enhances education, responds to citizens’ preferences, and redirects law enforcement resources to toward important public safety issues.

Seriously, what’s not to like?

— Burdett Loomis is an emeritus professor of political science at the University of Kansas.

Comments

Joe Ryan 1 month, 2 weeks ago

One could argue that the Kansas Tax cuts had some unintended consequences like the number of independent businesses and the organization of such to take advantage of the tax cuts BUT it is not true that revenues nosedived. The truth is that revenue increased each year, just not enough to keep up with the spending. See: https://fred.stlouisfed.org/series/KSSLGRTAX The newspaper should not be pushing a narrative that it likes, should stick to the facts

R.J. Dickens 1 month, 2 weeks ago

There are only two things wrong with Professor Loomis' analysis: a) this is Kansas; b) it makes sense.

Bob Summers 1 month, 2 weeks ago

"Raising revenue is tough, especially in red states".

Let me fix this Liberal Loomis

Plundering money from the working stiff is tough, especially in states with fewer congenital Liberals like yourself

Ken Lassman 1 month, 2 weeks ago

Are you serious? Base state financing on sin taxes? Just another ploy to make state financing a little more regressive than it already is. Furthermore, when a drop in gambling and smoking revenues means schools suffer, do you think that the kind of dynamic that Kansans need?

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