| September 9, 2013
The Good News Is That the Bad News about Kansas Was Wrong
Once more, with feeling: Some good words about Kansas Gov. Sam Brownback, the historic income tax cut he shepherded to passage, and the performance of our northern neighbors since.
But first, a few words about Oklahoma’s Republican legislative majority, and Gov. Mary Fallin, over the last three years.
Over the last three years, Oklahoma state-government spending of certified revenue and other revenue has increased more than $800 million. Barring a change of the chief executive’s heart, that trend seems likely to continue.
The governor’s varied health-related proposals will grow government. The “America Works” agenda she is pursuing as chair of the National Governors Association is warmed-over School to Work—not all bad, necessarily, but not a formula for reducing government expenditures.
The only pro-active tax reduction of the Fallin era (as opposed to allowing previously enacted income tax cuts to go into effect—which would have required supermajorities to undo) passed this year, but it will not take effect until January 2015.
Mary Fallin will be a few days into her second term as governor before the first tax-reduction legislation she has signed takes effect. To say this is a disappointment is an understatement.
In the course of the 2012 legislative session, Fallin and legislative allies went from advocating a gradual phaseout of the income tax to supporting a measure, in the last week of session, that actually would have increased income taxes on many Oklahomans.
Even though Fallin has not cut taxes on her watch, the state economy is doing extremely well, with one of the lowest unemployment rates in the nation and record-shattering state tax receipts flowing from levies on Oklahoma’s workers and job-creators. Analysts in Oklahoma attribute this growth to a number of factors, including pro-growth policies such as Right to Work, personal income tax cuts, and elimination of the death tax. Also credited for such growth has been the increase in oil and gas exploration (which, ironically, is now being targeted for tax increases).
Kansas, meanwhile, on January 1, 2013, put into effect the largest personal income tax cut in state history. The measure was enacted in the spring of 2012. That’s not all. Kansas eliminated the income tax on small-business income.
Taken as a whole, the Kansas plan triggers slow-motion controls on government spending. The glide path to zero income tax that Fallin championed once upon a time is a given in the Kansas approach, happening now but accelerating after July 2018, so long as tax revenue continues its upward trend.
To be clear, there were some trade-offs in the sales tax levy. (Sales taxes were reduced, just not as much as had been previously scheduled.) Brownback’s priority was to take the Kansas income tax levy—now slightly below Oklahoma’s—to 3.5 percent soon, and then lower (if the economy cooperates) during his second term.
Despite last year’s historic income tax cut, Kansas general fund receipts increased around $29.9 million in fiscal year (FY) 2013, and total tax revenue grew about $72.2 million.
Personal income last year increased 2.9 percent over the 2011 level—slightly better years are expected in both 2013 (3.1 percent) and 2014 (4 percent). Unemployment in the Sunflower State is slightly above Oklahoma’s, with both much lower than the national average.
Kansas officials are hopeful. Part of the reason for their optimism might be the comparative discipline officials have exercised on the spending side of government.
Any reader absorbing these words can have his or her personal preference: steady spending growth with no new tax cuts (Oklahoma) or tightened spending and major tax cuts (Kansas).
Sure, there are some who want to increase taxes significantly, and boost government spending more rapidly than Fallin has. To each his own.
But make no mistake: Kansas’ combination of policies has not provoked Armageddon. To the contrary, Kansas government is growing more slowly than Oklahoma’s, and their economy is growing.
Sam Brownback is proving that platforms both he and Fallin ran on in 2010 can be successfully implemented. I have talked with OCPA research fellow Steve Anderson, formerly a budget analyst in the Oklahoma Office of State Finance, about his recent experiences as Gov. Brownback’s budget director.
- Anderson recently summarized for the Kansas City Star, along lines I heard from him in a June interview, the situation state government faced when the Brownback administration began:Cash balance for FY-2010: $876.05
- FY-2011 projected deficit: $500,000,000
- Unemployment rate: 6.9%
- Tax burden: 2nd highest in the region
- Population loss: 10% decrease in half the counties
As of early August 2013, here is how the fiscal picture for Kansas government had changed in two and a half years:
- Cash balance for FY-2013: $587,800,000
- FY-2014 projected surplus: $509,700,000
- Unemployment rate: 5.8%
- Tax burden: 2nd lowest in the region and going lower
- Job growth: 45,300
- Population growth: 27,068
Beyond the historic income tax cut, Brownback’s intention—which proved successful—was, as Anderson says, to unleash “the power of our small businesses, the heart and soul of our economy, by eliminating their income taxes to encourage and support business expansion and hiring.
“We have balanced the state budget, while increasing the state’s investment on K-12 education by more than $239 million from FY-2010 to FY-2014. We have continued to build and maintain the highways of our great state. We are building a state-of-the-art crime lab for the Kansas Bureau of Investigation to support law enforcement efforts across the state.”
These things have been accomplished even as the Brownback agenda, to lower taxes and nip and tuck at government, took effect. Anderson looks back on his three years serving in Kansas with satisfaction, and that’s understandable: “We have set the stage for the citizens of Kansas to compete in a global economy. Our primary competitors, surrounding states, have taken notice. And they should.
"The Kansas portion of the Kansas City Metro area gained 9,500 jobs from May 2012 to May 2013 while the Missouri side registered no change in total nonfarm employment over the year. Employment on the Kansas side of the metro area reached 454,800 and surpassed the all-time high of 452,800 recorded in June 2008. Those are real jobs for real Kansans, supporting real families.”
When Kansas cut its taxes, Oklahoma’s tax consumers predicted fiscal collapse or stress for our neighbors. Various Republican policymakers joined the chorus.
But often, he or she who dares, wins.
Kansas and Oklahoma have taken different courses. In the former, liberty is incrementally advancing. In the latter, government is incrementally advancing. It is not hateful or mean-spirited to say this: These are factual statements.
As OCPA’s fiscal policy director Jonathan Small told me: “Fundamentally, Governor Brownback and many lawmakers in Kansas have determined they truly believe that more dollars left with their citizens is better than any government spending they may choose.
“So in Kansas, cutting taxes and minimizing the growth in state government spending is their number-one priority. In Oklahoma, as demonstrated by the last three legislative sessions, lawmakers’ and the governor’s actions show they would rather spend all of the growth revenue, and that they believe they are better at employing the fruits of their citizens’ labor than the very citizens who generated all the growth in the first place. Oklahoma lawmakers are prioritizing spending increases first, shunning limits on spending and revenue growth to let hardworking citizens escape the current penalty on the price of work, and putting off meager tax relief until the distant future.”
Fallin and the Oklahoma Republicans need to decide what they are for. If the agenda is to manage the growth of government in an Eisenhower approach to governance, then by all means act and speak accordingly.
On the other hand, if the agenda is to, over time, make government smaller and reduce the portion of income taken from individuals by taxation—look north.