Your Turn: Mistaking cause and effect on taxes
The Kansas Jayhawk football team recently broke a nine-year road game losing streak, just one year after state legislators approved the largest income tax in state history, so the Jayhawks’ road win is a result of the tax increase. That conclusion is obviously absurd, but it’s the same reasoning applied in a recent Journal-World editorial that opposed the income tax cuts.
Throwing all logic aside, the Journal-World says Kansas having the 10th highest second quarter growth in personal income is “proof” that state income tax cuts were bad. Forget the fact that Kansas had the 49th highest (aka, second worst) growth rate in the first quarter and that bounce-back can make the following quarter look a lot better. Ignore the absurdity of tax increases not causing big personal income gains for the first nine months they were in effect but then suddenly being the cause of growth. The Journal-World likes the personal income growth and it approved of the tax increase, so one obviously is the cause of the other.
The growth in personal income couldn’t possibly have anything to do with the huge federal income tax cut for business and individuals, could it? Might Kansas businesses give out bonuses and raise wages because lower taxes allow them to spend more? Lawrence Paper Company did that, and so did other companies.
Personal income grows when companies hire more people, increase wages and spend more on employee health care and retirement benefits; it also grows when proprietors’ profits increase. Tax cuts leave employers with more resources to do those things, but tax increases reduce available resources.
This basic economic principle is apparent in the comparative growth in wages and salaries, which is the largest component of personal income. According to the Bureau of Economic Analysis, the 10 states with the lowest combined state and local tax burden as ranked by the Tax Foundation experienced 119 percent growth in wages and salaries between 1998 and 2017 versus 102 percent for the 10 states with the highest combined tax burden. The margin of victory was even wider for the states without an income tax (127 percent versus 96 percent).
The states with the lowest combined state and local tax burden also have superior economic growth compared to those with the highest burden. Between 1998 and 2017, the low-burden states outperformed the high-burden states on private sector GDP growth (139 percent versus 114 percent) and on private sector job growth (38 percent versus 24 percent).
Kansas consistently trails the nation on these important economic measures, and it could get worse in the very near future. Calculations by Kansas Legislative Research Department show a significant revenue shortfall exists over the next four years to pay for approved and proposed school funding increases if no money is taken from the highway fund, pension payments are made as scheduled and legally required ending balances are maintained. If the new governor and legislators close that shortfall with a tax increase, it would dwarf the largest tax increase in state history passed in 2017 and seriously impact job and wage growth.
— Dave Trabert is the president of the Kansas Policy Institute, a free market think tank.