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Brownback says media not reporting good economic news. Here's why.
News outlets in Kansas are not reporting the good news about the Kansas economy, and if they did, voters might feel differently about the impact that Gov. Sam Brownback’s tax policies have had on the state.
That’s the message that Brownback himself has been delivering lately, in talks to various groups around the state, including a recent get-together with the Kansas Press Association board of directors.
So when word of that conversation got back to the news desk, the Lawrence Journal-World asked to meet with the governor and let him make his case. Brownback agreed, and in the course of a 25-minute interview, he laid out his case — complete with a wealth of charts and graphs — with data that he says prove the Kansas economy is in better shape than people give it credit for.
“It just never gets out,” Brownback said at the outset. “That’s what I was complaining about, because we’ve got some really good employment numbers and small business growth numbers in the state, and that just never gets out.”
Much of that, he said, is directly due to the tax cuts he championed in 2012 and 2013. And in the areas where the state’s economy seems to be lagging, Brownback blames global, macroeconomic forces, such as commodity prices in the farm and energy sectors that are beyond the state’s control.
Brownback has good reason to try to shore up his case at this point. His allies in the Legislature who helped push through the tax cuts — at least those who actually ran for re-election — suffered badly in the Aug. 2 primary, and many people say there's a good chance they could suffer more defeats in the Nov. 8 general election.
If 2016 turns out to be a "wave" election, in which the balance of power in the Legislature completely shifts, then Brownback could be in for a tough ride in the last two years of his administration. And although there's every reason to believe that most voters who are motivated on the tax issue have already made up their minds, Brownback has an incentive for trying to make his case while he still has time.
The purpose of the tax cuts, Brownback reminds people, was to spur business development and increase private sector jobs over the long term. And by putting more money in the pockets of individuals, the theory was, that would generate economic activity that would produce revenue for the state from other sources, such as retail sales taxes, to offset the loss of income taxes.
“What that was built upon is, if you get a kind of normal economic situation, that as you cut income taxes, you’ll gain it back in sales,” Brownback said. “That was the theory. That was the experience in some other areas.”
Here are some of the numbers that Brownback cites to make his case.
The border wars. One of the boldest claims Brownback makes is also the most difficult to verify independently. That is the claim that Kansas tax policy has reversed the outflow of economic wealth from the Kansas side of the Kansas City metropolitan area to the Missouri side.
“We were losing tax filers to Missouri for 19 years in a row,” Brownback said. “That’s us losing wealth to Missouri. Enact the tax policy, and boom. We were having out-migration from Kansas the last three years prior. We now have in-migration, and a lot of that’s Missourians moving to Kansas.”
According to one of his charts, based on Internal Revenue Service data, in the three years just before the tax cuts were enacted, Kansans moving across the state line into Missouri were taking with them $150-$200 million a year in adjusted gross income.
But immediately after the tax cuts, in 2013 and 2014, the trend reversed, and now Missourians are moving back, bringing with them about $85 million worth of income.
According to Census Bureau data, however, there was no out-migration of people in the metro area from Kansas to Missouri.
Looking at migration data from 2009 through 2013 for Johnson, Wyandotte and Leavenworth counties on the Kansas side, and Jackson, Clay and Platte counties in Missouri, Kansas was a net winner in migration, gaining 2,396 more people from Missouri than Missouri picked up from Kansas.
“We are not saying we were losing residents to Missouri prior to the tax cuts,” Brownback’s spokeswoman said in an email. “We were gaining residents but that rate tripled following the implementation of the tax policy.”
“We had been losing wealth (and) money to Missouri, but not people,” she continued, “and now we are gaining people from Missouri and seeing wealth transfer in to Kansas as well.”
Business creation. According to data from the Kansas Department of Revenue, Brownback said, roughly 18,000 new businesses filed tax returns in the first two years of the tax plan, either under business names or Social Security numbers that had never shown up in state tax records before.
"And you've got 650 of those in Douglas County," he said pointedly.
Jeannine Koranda, spokeswoman for the Department of Revenue, said that was based on internal analysis of individual tax returns, which are not available to the general public, and no more detailed information about that analysis was available.
But even accepting that the numbers are accurate, the creation of those new businesses has not translated into large numbers of new jobs.
Numbers from the Bureau of Labor Statistics show that since the tax cuts took effect in January 2013, Kansas has added, on a seasonally adjusted basis, only 34,400 new private sector jobs, a growth rate of just 3.1 percent over three and a half years. That’s less than half of the national average of 8 percent growth in private sector employment over that same period.
“We’re a little flat,” Brownback said.
Nor would Brownback say that the job growth Kansas has seen is directly related to his tax policies.
“We don’t have the hard data that I know of to say that because of our business policy, we have this growth in private sector jobs,” he said. “But I do know we’ve hit near record on private sector employment. We’ve got record numbers of new small businesses formed.”
Furthermore, Brownback acknowledged, some new business entities are merely extensions of existing businesses, especially among real estate developers who commonly set up separate entities, known as limited liability corporations, or LLCs, for each individual development project.
But Brownback said even that represents economic growth.
"I’ve talked with developers, and one developer in particular in Douglas County," he said. "They form a new LLC to put the new building in. He’s out of Wichita, but he says, ‘Look, I’m using this to build buildings — the tax benefit of being able to put this, the revenue generated off of it.’ And he says we’re doing this in Lawrence. And you’ve got a lot of building going on."
Individual income tax collections. The tax cuts that Brownback championed came in two phases. In 2012, lawmakers passed a bill that slashed individual income tax rates overall and completely exempted income derived from certain kinds of business entities. The following year, lawmakers attempted to fix some technical problems in the original bill, but also passed a formula, which some called the "glide path to zero," that was meant to phase out income taxes altogether over a period of time.
In the first full fiscal year of the tax cuts, 2014, individual income tax receipts in Kansas fell 24 percent, to 2.2 billion. They bounced back slightly by 2.7 percent in fiscal year 2015, to nearly $2.3 billion, but fell again in the most recent fiscal year.
In the fiscal year that just ended June 30, Kansas collected about $2.25 billion in individual income taxes, still 23 percent less than the $2.9 billion collected in fiscal year 2013, before the full impact of the tax cuts took effect.
According to the Legislature's nonpartisan Research Department, the full impact of the tax cuts is that Kansas is now collecting about $920 million less each year than it would have if lawmakers had made no changes to the tax code.
But so far in the new fiscal year, Brownback said, individual income tax receipts have started to recover. In the first quarter of the new fiscal year, receipts have grown by $25 million, or nearly 5 percent over the same period last year, and they've actually beaten the official estimates by nearly $1.7 million.
"My point is, when people criticize the tax policy, the places where we’re not getting the yield are corporate taxes, which we didn’t do anything to; sales taxes, which we actually raised; and personal income. That’s the one where we’re actually ahead of last year, and we’re ahead of the estimate. That’s the one we cut."
But if income tax receipts are rising, it does not appear that the personal income of Kansans overall is changing very much. According to data from the Bureau of Economic Analysis, growth in per-capita personal income in Kansas has not kept pace with the rest of the nation.
Sales tax receipts. One of the most disappointing revenue figures that have been reported since the tax cuts were enacted is the lackluster growth in retail sales. That was, after all, a built-in assumption about cutting income taxes — that it would put more money in people’s pockets and spur consumer spending.
In fiscal year 2014, the first full year after the tax cuts, retail sales tax collections actually declined 3.7 percent, to $$2.1 billion. That was also the year that the sales tax rate dropped slightly, the result of a previous tax plan enacted by former Gov. Mark Parkinson in 2010 that included a “temporary” increase in the wake of the Great Recession.
Since 2014, sales tax have grown slightly, but not nearly at the pace that budget analysts had expected. In the most recent fiscal year, sales taxes grew 6.2 percent over the previous year. Of that, however, 5.7 percent can be attributed to the 2015 Legislature raising the sales tax rate, leaving only half a percent attributable to increased consumer spending.
The rural economy. Brownback says that has begun to turn around in the new fiscal year, with sales tax receipts in the first quarter beating the same period last year, and exceeding current estimates. But he acknowledges that hasn’t been even throughout the state.
“The urban areas are working. The rural areas are not,” he said. “If you add up all the rurals, it does actually matter.”
The rural economy, Brownback said, has been beset by global economic factors that state government is unable to control.
“We cannot overcome a huge falloff in oil prices, or a huge falloff in cattle prices and wheat. … You go west of Salina, it’s basically the pits. You go into the oil areas and gas areas, really bad. And your ag area is not very good, but the urban, where you’ve got a more normal situation.
“We’re flowing against a bad commodity market for us that normally hammers Kansas pretty hard,” Brownback said. “Because once you drop in ag prices, they don’t buy farm equipment; then our farm equipment manufacturers cut back employment. Once you’re not drilling for oil, you don’t have those employment jobs.”
“The urban areas are working. The rural are not,” he said. “If you add up all the rurals, it does actually matter.”
But the Kansas economy has always been moved by global economic forces that are beyond state government’s ability to control. And some have suggested it was folly from the beginning to think that those forces could be overcome with changes in the state of Kansas income tax code.
“I disagree with that,” Brownback said. “I agree we can’t impact the price of oil or the price of cattle. That’s a global commodity market. But I do think you can impact people moving. I think you can impact the growth of business, or decline over time. And we’ve got the data to show that’s indeed the case.”