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LJWorld.com weblogs Statehouse Live

ITEP report says race to no income tax based on flawed theory

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The effort by Gov. Sam Brownback and several other Republican governors to eliminate personal state income taxes is based on an economic theory that is "extremely flawed," a new report by a non-partisan research group says.

Brownback has depended on the claims of supply-side economist Arthur Laffer that states without personal income taxes are outperforming those with state income taxes. Last year, Brownback hired Laffer for $75,000 to help draw up the governor's tax proposal.

But the Institute on Taxation and Economic Policy says income tax cuts don't appear to actually stoke state economies.

"In reality, states that levy personal income taxes, including the states with the highest top rates, have seen more economic growth per capita and less decline in their median income level over the last 10 years than the nine states that do not tax income," the ITEP report states. "Unemployment rates have been nearly identical across states with and without income taxes."

Laffer's claims are based on growth in Gross State Product, which is related to population trends, and he asserts that tax policy is behind the migration of people into low-tax states.

But ITEP says population growth in states isn't determined by tax policy. The report says the growth is more attributable to low housing prices, warm weather and high birth rates in those states.

The ITEP study looks at median family income, which shows that while income has declined in most states over the past decade, the declines have been smaller in states with income taxes. Five of the nine states without income taxes are doing worse than average in median income growth.

And ITEP says that Laffer's theory fails to take into account that some states don't choose to levy an income tax because they have an unusual economic resource, such as oil, coal or tourism.

Here is a link to the report: http://itep.org/itep_reports/2013/02/states-with-high-rate-income-taxes-are-still-outperforming-no-tax-states.php#.UTIP-b-xeRY

Comments

ibroke 1 year, 9 months ago

I dont believe the report YOU KEEP THE GOOD WORK SAM BROWNBACK!!

msezdsit 1 year, 9 months ago

Right, don't ever let a good fact get in the way of ideology and Brownbacks attack on the poorest people in the state and our children.

Alyosha 1 year, 9 months ago

When you say you don't believe the report, you mean that you don't believe it exists? Why would you say that?

If you disagree with the methodology or conclusions in the report, then you are morally obligated to demonstrate, not just assert, how the methodology or conclusions are incorrect.

Otherwise, your response if meaningless and worthless.

chootspa 1 year, 9 months ago

Countdown to Trabert whining about this in 3...2....1....

deec 1 year, 9 months ago

It only took about an hour. Good call!

And Koch mouthpiece organizations don't like nonpartisan studies. there's a surprise.

yourworstnightmare 1 year, 9 months ago

The fact that Trabert comments on these forums suggest that Mr. Rothschild's reporting is incisive and theatening to him and his cronies and their economic fairy tales.

Mr Rothschild, you have their attention. Keep it up.

grandnanny 1 year, 9 months ago

In response to ibroke, I hope you were being sarcastic. If not, I feel for you. Understanding basic facts is a higher-level thinking skill that takes some time to perfect. If you were being serious, then I hope you don't own a home because you may start to notice a hugh increase in property tax. Also, we are about to lose the home mortgage deduction so home ownership will be out of reach for many anyway.

Bob Forer 1 year, 9 months ago

"higher-level thinking skill"

FOR THE WIN!!!

phsxtchr 1 year, 9 months ago

Linking to ALEC and KPI to "debunk" this study is like linking to a tobacco industry report to debunk the idea that smoking is bad for your health. It is painfully clear that ALEC and KPI have political and economic agendas. Dave, please provide links to non-partisan studies to support your assertions.

just_another_bozo_on_this_bus 1 year, 9 months ago

So says the professional partisan, Dave Trabert, in the hire of two of the single largest beneficiaries of elimination of income taxes.

ScottyMac 1 year, 9 months ago

Mr. Trabert:

If these studies have been "debunked many times over," why do you offer three links that refer to the exact same article: A single ALEC-funded "study"?

That so-called study (paid for by Koch, of course) has been dismissed as intentionally misleading:

http://www.iowafiscal.org/2013docs/130211-IFP-ALECmyths.pdf

Armstrong 1 year, 9 months ago

One need only look at the author of this piece

Alyosha 1 year, 9 months ago

You forgot to finish your sentence, Armstrong. "One need only look at the author of this piece...." to .... what?

If you have objections to the facts reported in this story, why don't you list them out and explain them?

In general, though, if you want to be taken seriously, you should write in complete sentences.

ScottyMac 1 year, 9 months ago

I read "Tax Myths Debunked." I see nothing in your link that "debunks" the ITEP study cited in the article. Can't imagine why you would throw us a red herring...

chootspa 1 year, 9 months ago

So you're "debunking" this study by pointing to the same Laffer studies that ITEP is debunking? I'm really not sure how you manage to find your way out of your house in the morning with all that circular reasoning.

question4u 1 year, 9 months ago

This is a report from a non-partisan research group. Other non-partisan reports project huge deficits for the Kansas budget in the years to come. A non-partisan report has just predicted slow growth to state economies in the Midwest over the next six months despite changes in tax structure.

There's no question that some people will benefit from Brownback's tax plan: the nearly 190,000 business owners who will pay no state income tax.

Everyone else should be concerned by this non-partisan research, and especially by the lack of non-partisan research to the contrary. Of course, if you're the kind of adult who believes in Santa Claus...

smileydog 1 year, 9 months ago

Non Partisan research ITEP is funded by George Soros.

deec 1 year, 9 months ago

Fair enough. What about the state's own studies that show a huge deficit caused by the income tax elimination?

Dave Trabert 1 year, 9 months ago

The static analysis by legislative research presumes spending will grow another $700 million and ignores the reality of adjustments that will be made. That's just the nature of a static analysis.

Our dynamic analysis predicts about $533 million in additional revenue over the next five years and shows that only a one-time spending adjustment of about $186 per resident is all that's needed to implement tax reform. And if Kansas reduced General Fund spending by that amount, Kansas would still have higher General Fund spending than any state in the region.

phsxtchr 1 year, 9 months ago

Dave, your "dynamic analysis" is based on the Laff-able theory that lowering tax rates automatically spurs massive economic growth and job creation. The reality is that we've tried that already and it didn't work. We've had the Bush-era tax cuts in place for a decade now but where are all those new jobs and all that economic prosperity?

Bottom line: there is theory and then there is reality.

chootspa 1 year, 9 months ago

Your "dynamic analysis" is wishful thinking and nothing more.

phsxtchr 1 year, 9 months ago

Here's a little math showing how much more economic activity will have to occur to make up for eliminating the state income tax:
FY 2013 revenue (using KPI's "dynamic analysis") - $6181 million. % of state budget that comes from income tax - 44%. FY 2013 revenue from income tax - $2720 million. 2012 state sales tax % - 6.3%. Additional sales needed to make up for lost income tax revenue - $37016 million. KS population - 2.9 million. So, every single man, woman and child in Kansas would have to spend an additional $14,900 each year for the sales tax to make up for the ending of the income tax! Dave, do you really believe that this is possible?

chootspa 1 year, 9 months ago

Of course he doesn't. He thinks the state will stop spending money on things like schools and health care because there are magical unicorn "efficiencies" we'll find if we just look hard enough.

chootspa 1 year, 9 months ago

Oh - I also wanted to point out the "general fund spending" lie. Half of our spending is on education. The other states in the region primarily fund their schools through local taxes. We do it through state taxes. So it's an apples and oranges comparison meant to make it sound like we're spending more than we are. It's also a common tactic used by Trabert when he tries to argue that Kansas education spending is out of whack.

Orwell 1 year, 9 months ago

"Dynamic analysis" is propaganda-speak for "adding an arbitrary variable that gets us to the desired result."

Bunk and hogwash.

yourworstnightmare 1 year, 9 months ago

Economic fairly tales promulgated by those who stand to benefit.

I just hope our collective memory will recall these shenanigans when the Kansas economy and budget tanks.

Brownback and his supply-side fairy tale actions will be to blame.

Armstrong 1 year, 9 months ago

Because the Sebelius plan worked so well.... How many $ millions were we in the tank ?

tomatogrower 1 year, 9 months ago

We weren't in the tank. Kansas can't run a deficit. Please educate yourself about our state government.

Armstrong 1 year, 9 months ago

Here's your wake up call $ 186 million short 2008-9

en.wikipedia.org/wiki/Kansas_state_budget_(2008–2009

ebyrdstarr 1 year, 9 months ago

That's not an uncommon experience in Kansas, that part way through the year, we realize that actual revenue is less than projected, so the budget has to be adjusted because, as tomato correctly pointed out, by law, we can't have a deficit. I'm not really sure what point you are trying to make.

Armstrong 1 year, 9 months ago

Fact $186 million defecit. Tomato can be correct or not but the fact remains the same

jafs 1 year, 9 months ago

It's not a deficit, it's a "projected" deficit. Since states are required by law to have balanced budgets, that means that any governor will have to adjust spending accordingly in order to balance the budget.

Alyosha 1 year, 9 months ago

What "Sebelius plan" are you talking about?

Armstrong 1 year, 9 months ago

I guess you could call it a lack of plan. This was in response to tomatogrowers claim Sebelius did not run a defecit

Katara 1 year, 9 months ago

You're basing this on your 30 year ago mistake?

If you couldn't distinguish bad financial advise for 30 years, why should we listen to you?

tomatogrower 1 year, 9 months ago

When the recession hit in 2008, those states who relied on sales tax revenue were hurting. People weren't spending as much. Yes, income tax revenue drops when people are laid off, but not nearly as bad as the sales tax.

yourworstnightmare 1 year, 9 months ago

These tax cut fairy tales combined with the increased spending of Brownback relative to Parkinson will catch up with Kansas.

Deep cuts to things like schools, roads, social programs. This is the result that Brownback and others want, smaller government. The quality of life in Kansas will plummet, and no businessperson in their right mind will want to relocate employees to the state, especially in high tech industries that require an educated work force.

This is an unpopular result, so he is using the fairy tale of supply side economic nonsense (tax cuts = more revenue via magical job creation) to cover his political tracks.

John McCoy 1 year, 9 months ago

Here in Texas, there is no state income tax. Instead, we have one of the most onerous property taxes in the nation. And, buddy, you had better pay those high taxes, or the sheriff will come and sell your house right out from under you. The average 3/2/2 in our county will cost you over $3,400 in property tax the 1st of Jan. each year. You had better find the money. I personally would rather pay a state income tax based on the federal tax owed.

headdoctor 1 year, 9 months ago

If Kansas does eliminate income taxes we will be far worse off accordingly than Texas on property tax increases unless they restructure our property tax system at the same time income tax goes away. Over the last several years Kansas lawmakers have eroded the property tax base through exemptions and other reductions. A fact that even KDOR's own paid for study proved. There are some counties in Kansas that you already don't want to live in because as much as 50% of the land in some have been removed from the tax roles leaving the other 50% to generate enough revenue to operate.

Tomato 1 year, 9 months ago

I might not appreciate a whopping property tax bill either, but it when you think about it, it does seem fair.

You're being taxed on what you purchase. Even if you use tax loopholes and credits to keep your taxable income low, you still get taxed on what you decide to buy. That has a sense of fairness to it.

But in the end people will support whatever they think benefits them the most. If you have a low federal income tax liability but own a nice house and buy a lot of stuff, then state income tax sounds better than a sales/property tax. If you have a relatively high federal tax liability in proportion to your income, but are frugal, then a sales/property tax combo sounds better than income tax.

msezdsit 1 year, 9 months ago

Brownback never cared if there was evidence that eliminating income tax would work as he falsely claimed it would. He was only interested in eliminating state income tax. So, for Brownback, he is still in the right. Brownback's real interest was eliminating all the things a state income tax historically supported. Say, for example, public education.

JayhawkFan1985 1 year, 9 months ago

Poor Dave Trabert. The Dunning Kruger Effect illustrates that he just doesn't know what he doesn't know. But, we know that repetition of a fallacy doesn't make it true. Maybe if Dave would go back to school and get some fancy book learning he would understand more...oh yeah, public education and higher education will be gone by then.

Liberty275 1 year, 9 months ago

"Poor Dave Trabert. The Dunning Kruger Effect illustrates that he just doesn't know what he doesn't know."

Sometimes, knowing how to spot a thief is enough.

JayhawkFan1985 1 year, 9 months ago

Liberty, what are you talking about? Are you saying that the state of Kansas has been stealing your money by collecting taxes? That's ridiculous. We live in a civil society were the taxes we pay provide for the services we receive...roads, law enforcement, schools, etc. paying taxes is a patriotic obligation just like voting.

chicago95 1 year, 9 months ago

Thanks to Scott Rothschild for bring this report to light.

Katara 1 year, 9 months ago

An excellent way for Brownback and his cronies to claim the Feds have increased your taxes, although it was the state's actions that caused it.

gccs14r 1 year, 9 months ago

To answer your question, yes. Then you instead deduct state sales taxes, which means you have to keep every piddly little receipt for everything, then add it all up at the end of the year.

Tomato 1 year, 9 months ago

That's not true. The IRS has a sales tax calculator. My deduction came out as $1331 without any big purchases.

Furthermore, it's not true that Kansas income tax reduces your gross income. It's an itemized deduction. People who take the standard deduction will be totally unaffected on their 1040.

Sam Crow 1 year, 9 months ago

So, Rothschild calls the Institute on Taxation and Economic Policy a non partisan group? Whenever I see such a statement, I seek out who runs, and is affiliated with, such a group. An examination of the ITEP shows the following:

From their website, the board of directors comes from “academia and labor”. The vice president of the group is Robert Kuttner, editor of the publication The American Prospect, which describes itself as “a journal of liberal ideas, committed to a just society, an enriched democracy, and effective liberal politics". The five member board includes the very liberal Robert Reich, Berkley professor famous for his position as Labor Secretary in the Clinton administration.

ITEP board member Nicolas Johnson is also with the group Center on Budget and Policy Priorities. In the CBPP, Johnson is Vice President for State Fiscal Policy. Johnson was a democrat staff member for the U.S. Senate Committee on Agriculture.

The president of the CBPP is Robert Greenstein, who has held high ranking positions in the Carter, Clinton, and Obama administrations. The vice president is T. Scott Bunton, who was a senior advisor to Senators Robert Byrd and John Kerry. This group is full of former staff members to democrat administrations and congress members.

So Scott, please spare us the crap about the ITEP being a “non-partisan research group”. It is a liberal think tank, interconnected to other liberal groups, advancing its position by issuing “reports” such as this one.

chootspa 1 year, 9 months ago

So, freshly minted LJ user, did you have anything of substance to critique about the report or are you just here to tell us that gasp there are professors on the board of directors?

Kathleen Ammel 1 year, 9 months ago

I appreciate SamCrow's comment, as it points out the usual tripe that there is a "non-partisan" study. Just as the KPI or ALEC is hardly non-partisan, neither is ITEP. And there are gasp professors on their boards as well.

chootspa 1 year, 9 months ago

Oh, I don't dispute that "non-partisan" is ever the same thing as neutral ideology. But a think tank with a particular leaning or focus is different than a think tank (or corporate lobby group in ALEC's case) that pumps out sloppy research. Hello, KPI and ALEC.

And actually, there's no professor on the board of directors of either of those institutions according to either website. I think your false equivalency argument may have run into a stumbling block on that particular point.

At any rate, I'd also appreciate the comment more if it weren't made by a brand new account that as of this point has only posted that comment. I'm just sayin'.

Kathleen Ammel 1 year, 9 months ago

I don't get the whole brand new account accusation (as if someone who doesn't spend their life commenting on LJWorld articles has less to say or has a somehow inferior opinion?).
You obviously didn't look far enough into KPI and ALEC...oh, I'm sorry, they're listed as scholars instead of directors. As most professors I've known couldn't direct their way out of a paper bag, I see no problem with having a separate board of directors and a board of scholars.

chootspa 1 year, 9 months ago

It's not an accusation. It's a fact. New poster, only comment. Still the only comment as I'm posting it. You can draw your own opinion about the non sock-puppet nature of a single strategic comment left by an anonymous poster who created their account that very same day. At least you've toughed it out for all of eight posts.

The new poster's only comment said board of directors. You said board of directors. You're now moving the goalpost to say something else, because you didn't bother to check before you made the comment. A "scholar" is not the same as either the advisory board or board of directors.

Armstrong 1 year, 9 months ago

vice president of the group is Robert Kuttner, editor of the publication The American Prospect, which describes itself as “a journal of liberal ideas, committed to a just society, an enriched democracy, and effective liberal politics

No substance? Me thinks substance - o - plenty. Did you honestly think this would be a fair and balanced article ? Clever Obama tactic however Choots, when losing a debate muddy the water with off subject matter.

chootspa 1 year, 9 months ago

That's not substance. That's guilt by association. Please try again. You mistrust the study because you don't like liberals or academics, and heaven forbid they be both. Fair enough.

Now find some flaws with the report itself rather than avoiding cognitive dissonance by dismissing the findings before you've even comprehend them. That would be substance.

Dave Trabert 1 year, 9 months ago

Facts abound in the rebuttals. That's substance. But you've already dismissed those findings because you don't like anything that comes from a free market perspective. Funny how you're doing the exact same thing for which you just ridiculed Armstrong.

chootspa 1 year, 9 months ago

Haha - and where might we find those "abounding" facts? I'm fine with a free market perspective, so long as it doesn't come from radical anarcho-capitalists. Nobody here is trying to end the free market. I'm not fine with sloppy data, and that's all you've provided.

JayhawkFan1985 1 year, 9 months ago

Dave, everyone is entitled to an opinion...even if it is uninformed And ignorant. But, nobody is entitled to make up their own facts. Facts are not a matter of perspective, free market or other. Facts reflect reality. They must be observable and verifiable. You like to repeat lies frequently and dress them up like they are facts. Voodoo economics is still voodoo. The glide path to zero will be a detonation like Hiroshima and it is the middle class in this state that will be wiped out.

JayhawkFan1985 1 year, 9 months ago

Why is it that the right wing believes that everyone who is not lock step with them is far left? Sam crow, do you even know what non-partisan means?

Orwell 1 year, 9 months ago

The term for this type of response is "ad hominem," and it's no more valid than screaming "Obama" in response to everything.

Centerville 1 year, 9 months ago

This 'non-partisan' group is operating off a flawed assumption: that money taken from the economy and given to the government is money well spent. That, very obviously, is untrue. But, nice try.

phsxtchr 1 year, 9 months ago

Speaking of flawed assumptions: the "money taken from the economy and given to the government" that you speak of is only half the story. Where do you think that money goes when the government spends it? Right back into the economy! Or do you think the government has a hoarding problem and not a spending problem?

Alyosha 1 year, 9 months ago

Barry who?

Do you mean the duly elected President of the United States?

Armstrong 1 year, 9 months ago

Yep, and before you get all high and mighty just remeber the degree of respect you gave W.

Alyosha 1 year, 9 months ago

Kindly show in the report referred to in this story where the assumption is articulated that "money taken from the government is money well spent." If you can't, your premise is flawed, and so is any conclusion you base upon it.

Also, try a thought experiment: taxes are levied upon citizens in state — for instance, a sales tax. The money raised from the sales tax is spent on materials and wages for improving roads. Businesses supplying materials are paid from the sales tax revenue, and profit; workers are paid from the sales tax revenue, and turn around and spend those wages on other goods and services (groceries, their gas bill, etc.). Businesses profit, workers are paid, critical infrastructure necessary for civil and economic activity is improved or created, all through the government spending of revenue gained from the sales tax.

One would have to be willfully ignorant not to see how the sales tax in this thought experiment is indeed money well spent.

Armstrong 1 year, 9 months ago

Better yet, show me one, just one instance that a ( state, local, national ) govt has created a profit on anything. It's recycling money. Barry hasn't figured it out and obviously neither have you. As evidence stimulus 1 & 2, "shovel ready jobs" or jobs,jobs,jobs, a.k.a failure,failure,failure.So you tell me, do you want money in your pocket or the govt's.Who spends money more wisely.

Orwell 1 year, 9 months ago

If the government is building safe bridges and the consumers are buying Cheetos I'd say the answer is obvious.

Jonathan Becker 1 year, 9 months ago

Example: Erica Jong -- Before she wrote Fear of Flying, Jong had published a small book of poetry, which was her submission to the National Endowment for the Arts LIterature Fellowship. Jong proposed to write a novel. She got a $15k NEA grant for a year of writing Fear of Flying. The first year after publication of Fear of Flying, Jong paid $650,000 in federal taxes. That is a profit of $635,000 or a net ROI of 4,233%

So there is the one instance that is the exception to your broad misstatement.

Dave Trabert 1 year, 9 months ago

What you are describing is a redistribution of other people's money. Even if all the money is unquestionably needed (as determined by taxpayers, not government) to efficiently provide an essential service, that's still not economic growth. All the profits and purchases you describe were first extracted from the economy. It may be necessary, but that's different from economic growth.

This is also called The Broken Window Fallacy. A good explanation is at http://www.youtube.com/watch?v=gG3AKo...

JayhawkFan1985 1 year, 9 months ago

Dave, again you are spreading GOP propaganda. When KDOT, for example, spends tax dollars on state highways, a substantial portion goes to private engineering consultants and private construction contractors. Those private businesses would hardly agree with you. Even when state employees spend their below market rate pay checks on mortgages, car payments, guns and butter, that money circulates in the economy creating jobs. Even public sector jobs are jobs and you and your ilk proposed cutting those jobs during good times and bad. Austerity programs don't work...just ask Greece and Iceland.

JayhawkFan1985 1 year, 9 months ago

The funny thing is that the more rural a community is, the more likely its citizens are to agree with Dave Trabert and his fellow liars at KPI and ALEC. The joke is that the more rural a community is the greater the percentage of no farm jobs are public sector jobs (ie, teachers, city and county workers, etc) and the more dependent the economy is on farm welfare/subsidies. It is the big cities like Kansas City, Wichita, and Topeka that are less dependent on the public sector for their economic health. Urban areas generally are more well educated. Rural areas are generally less well educated. Dave Trabert wants everyone to be less educated so the Koch brothers can get more tax cuts. Dave, we're on to you and Sam B. he won't win re-election. He will never be president. You will lose your tax exempt status. All will be right with the world because nobody will believe you guys when you blame Obama in 2 years for Kansas becoming the new Mississippi.

chootspa 1 year, 9 months ago

All taxes redistribute. Your plan just wants to redistribute toward the wealthy instead of toward the middle class and poor. Because this is a good thing?

The tired "broken window fallacy." Nobody is suggesting we break windows. It's a false premise that money would have been spent in the economy if it weren't spent on taxes. Corporations are sitting on their money right now, not hiring people because they suddenly have a tax break. Giving them more tax breaks doesn't stimulate hiring. Your benefactors, the Kochs, have simultaneously increased their tax breaks (and overall wealth) while decreasing their total employment.

JayhawkFan1985 1 year, 9 months ago

Centerville, are you saying that money spent on state highways, public education, and law enforcement is not well spent? If that is what you think, you are hardly in the center of the political spectrum...more like anarchist or fascist.

Richard Heckler 1 year, 9 months ago

Arthur Laffer is offering a theory nothing more that is for sure. Supply Side economics is voodoo economics which brings about wreckanomics and lots of debt. Supply Side Economics is supported with borrowed money.

Arthur Laffer is a D.C. beltway name aka the father of Supply Side Economics. Borrow and spend,borrow and spend,borrow and spend = wreckanomics and supports big debt. Arthur Laffer was a prominent figure in the Reagan-Bush administrations. His theories have left millions of Americans unemployed.

For example.

In the end big debt and super duper bailouts HAVE BEEN the results which does not seem to bother Republicans, as long as they are in power. In fact, by the time the second Bush left office, the national debt had grown to $12.1 trillion:

--- This GOP ENTITLEMENT - Over half of that amount had been created by Bush’s tax cuts for the very wealthy.

--- This GOP ENTITLEMENT - Another 30% of the national debt had been created by the tax cuts for the wealthy under Presidents Reagan and George H.W. Bush.

--- This GOP ENTITLEMENT - Fully 81% of the national debt was created by just these three Republican Presidents. http://www.dollarsandsense.org/archives/2010/0111orr.html

yourworstnightmare 1 year, 9 months ago

We are given magical fairy tales when what is needed is fact and evidence based decision making.

Are you listening, Dorothy?

Richard Heckler 1 year, 9 months ago

Last year, Kansas used workers' withholding taxes to bribe AMC Entertainment with a $47 million payment to move its headquarters from downtown Kansas City, Missouri, to a KC suburb on the Kansas side, just 10 miles away. What a ripoff! (((AMC Entertainment has since been sold to Dalian Wanda Group of China. )))

Bob_Keeshan 1 year, 9 months ago

Given the amount of time Trabert spends on here defending a partisan politician, you would think his organization's tax exempt status would be in question.

He is clearly advocating for Sam Brownback and like minded legislators. His is a political organization, not a policy organization, and as such should be subject to taxes.

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