March 5, 2015
Gov. Sam Brownback had been taking questions for several minutes when a polo-clad man in the front row raised his hand.
Brownback had just finished a speech to an intimate crowd here Thursday morning as a couple of dozen people listened while chewing on pastries. He had lambasted the media and downplayed the state’s massive revenue shortfall — expected to total more than $1 billion over the next two fiscal years.
The man asked how large Kansas’ current year budget deficit is. The visiting governor listened intently and responded that he had made allotments to deal with the $600 million current deficit.
But the man asking the question was not just an ordinary Missouri citizen, but Rex Sinquefield — one of the richest and most powerful individuals in the entire state.
Sinquefield, a St. Louis businessman and philanthropist, has established himself as a dominant player in Missouri politics over the past several years, funneling hundreds of millions of dollars to advocacy groups and political candidates.
Even as Brownback faces a grim budget situation that will probably require a combination of tax increases and spending cuts, he is pushing a counter-narrative in Missouri about what his income tax-slashing policies have produced. How the governor is perceived in the Show-Me state holds implications for his national legacy — helping to determine whether the former U.S. senator and one-time presidential candidate’s model is exported to Missouri and other states.
Sinquefield, perhaps the most important person in the audience Thursday for Brownback, can help shape how the governor and his signature policy are perceived in Missouri by a wielding a seemingly unlimited bank account to bring his economic vision across Kansas’ eastern border.
“Kansas is leading the whole nation and is setting the example for everybody,” Sinquefield said in an interview with The Topeka Capital-Journal.
A robust defense
Brownback may already have Sinquefield on his side, but the governor made his best case Thursday anyway.
Brownback spent much of his hourlong presentation to the Show-Me Institute (a Sinquefield-funded group) defending Kansas’ tax policy.
The Republican governor said the primary objective of all his economic policy has been to reverse Kansas’ population decline as a percentage of the country’s entire population — an accomplishment that would boost the state’s power and influence relative to the rest of the United States.
Brownback dismissed the furor sparked by the state’s revenue shortfall. In response to lower revenue, he has proposed a budget that calls for increases in tobacco and liquor taxes and would pause additional income tax rate cuts pending revenue growth.
“The yelling about it is far greater than the pain that’s here,” Brownback said.
Just this week, K-State President Kirk Schulz bemoaned a $3.1 million cut recommended by a Senate committee.
“Continued cuts in higher education have a harmful effect on the opportunities we can provide to the students and citizens of Kansas,” Schulz said. “At a time when we see increasing enrollment, the amount of state support continues to remain in flux. We had agreed to manage a flat budget for the next two fiscal years, and the proposed change in this agreement is disappointing.”
The governor said, as he has said before, that he is seeking to move Kansas from a state that depends on income taxes to one that uses consumption taxes. In response to a question from an audience member, Brownback said he doesn’t know at what level the state’s consumption taxes would have to be set to offset a zero income tax rate.
Kansas state and local sales taxes are already higher than all but one of its neighbors, however. According to the Tax Foundation, in 2014 Kansas had a combined state and local sales tax average of 8.15 percent — the 12th highest in the country. Only Oklahoma ranked higher, at 8.72 percent for 5th place.
Brownback said his policies are helping, if the objective is to grow the economy and create an environment friendly to small business. But, he said, it takes time.
“If you’re trying to grow an economy, would you give a dollar to a small-business person or would you give it to the government?” Brownback said, adding that while he has nothing against big business, he is most focused on small business.
Kansas got rid of income taxes for some business owners in 2012. The governor told a story of a man who had delivered lumber for the construction of a tent for Brownback’s daughter’s wedding.
“He said, ‘Hey, thanks for that small-business thing you did on the taxes, that’s really helping me out. I own this truck, I deliver for Menard’s and it’s really, really helped me out,’” Brownback said, recounting the conversation.
“I said, ‘What are you going to do with the money?’ ‘Well, I’m looking this fall at buying another truck and hiring another guy.’ And I said, ‘Great, that’s the right answer, that’s the perfect answer.’”
But critics aren’t so sure that is always happening. Annie McKay, director of the Kansas Center for Economic Growth, has expressed concern that money saved by business owners and other individuals from lower taxes isn’t always being reinvested back into their businesses, or even into the Kansas economy generally.
In data released this week in conjunction with the Kansas Economic Progress Council, the group says the governor’s own economic benchmarks show the state trailing behind the region in several key indicators. According to their analysis, Kansas lags behind a six-state region in population growth, overall production of goods and services, private industry employment growth and private industry wage growth.
“While other states in our region are experiencing superior economic growth, Kansas continues to struggle to pay its bills and meet basic needs as a result of the unaffordable tax cuts passed in 2012 and 2013. Kansans are having to pay an unprecedented tab for the failed experiment with little to nothing to show for it in our economy,” McKay said.
As Kansas’ fiscal drama has played out over the past few years, its neighbor to the east has been watching intently.
Missouri passed its own tax cut package last year. The bill, which was passed into law by a Republican-controlled legislature over the objection of Democratic Gov. Jay Nixon, reduces the top personal income tax rate from 6 percent to 5.5 percent by one-tenth of a percent each year beginning in 2017. But revenues must grow each year for the reduction to take place.
In addition, a 25 percent individual income tax deduction for business income will also be phased in.
While the Missouri cuts aren’t like the sweeping cuts in Kansas, some observers still think they spell trouble for the state. Amy Blouin, director of the Missouri Budget Project, a nonpartisan group that was critical of the tax legislation, includes some elements of what she calls Kansas’ failed policy.
“Last year during the legislative session in Missouri, lawmakers already started to dissociate themselves with Kansas, trying to make claims that the tax cuts they were passing were not the same thing,” Blouin said.
Policymakers in Missouri are already aware of Kansas’ fiscal difficulties, Blouin said, though Brownback on Wednesday gave his side of the story. At a luncheon in Jefferson City, the state capital, he said his tax policy had planted the “seeds of growth” in Kansas.
Dozens of Missouri lawmakers attended the Wednesday lunch to listen to Brownback’s ideas, The Associated Press reported, including some of Missouri’s lead budget writers, Senate President Pro Tem Tom Dempsey and House Speaker John Diehl.
Senate Appropriations Committee chairman Sen. Kurt Schaefer of Columbia told the AP the governor had “some really compelling numbers.”
“I’m not saying this is the way for people to go. It is a way to move forward,” Brownback said Thursday of his policies.
Sinquefield, who poured resources into lobbying for a failed tax cut effort in 2013 and the successful 2014 legislation, wants the state to keep moving closer to Brownback’s vision. In a brief interview, he enthusiastically threw his support behind the Kansas governor’s efforts.
“People on the left who like to criticize me, I say gloat now and gloat fast because your gloating days are soon going to be over when Kansas starts really growing and joining the ranks of the no-tax states, that’s going to be the killer argument. This is a live experiment that everybody gets to watch right now,” Sinquefield said.
Sinquefield’s use of the term “live experiment” to describe Kansas comes after Brownback’s now infamous remark during an MSNBC interview in 2012.
“We’ll see how it works. We’ll have a real live experiment,” Brownback said then of his tax policy.
The comment was criticized at the time and Democrats and others critical of the policy have since latched onto it, declaring that the experiment has failed. But at least for Sinquefield, the results are not yet in.
He has also set his sights on re-creating the experiment in Missouri. He appeared confident that the major expected gubernatorial candidates will pursue lower taxes.
Sinquefield indicated that both Republican Catherine Hanaway and Democratic Attorney General Chris Koster support decreasing taxation. Sinquefield has been providing regular funding to Hanaway’s campaign and had donated at least $900,000 by the end of 2014.
Missouri has no limits on campaign contributions. The other Republican expected to run for governor, State Auditor Thomas Schweich, had decried what he viewed as Sinquefield’s sway over the state’s politics. A week ago, however, Schweich shot himself dead in his suburban St. Louis home.
“Now, if Catherine Hanaway gets elected, we’ll move at a Kansas pace because she said the income tax has to go. And Chris Koster, the Democratic nominee, has told me that the tax on businesses and pass-throughs, which right now in Missouri with the new law when it takes effect will be 4.5 (percent) said it should go to three immediately. And he’s a Democrat. So the air is ripe in Missouri for big tax cuts,” Sinquefield said.
Sinquefield didn’t appear concerned about Kansas’ revenue loss, and asked rhetorically what people expect when taxes are cut.
Brownback didn’t appear overly concerned, either, during his St. Louis speech.
Chapman Rackaway, a political science professor at Fort Hays State University, said the governor’s rhetoric has been consistent. Brownback, he said, has surrounded himself with people that tell him his policies are working. Rackaway said he believes the governor gives little credence to the opinions of those outside his inner circle.
And without another election to worry about, the governor is free to speak his mind.
“As a lame duck, this is his opportunity to go fully unbridled toward his own agenda,” Rackaway said.
How fully that agenda is embraced in his second term remains to be seen. But as angst continues in Kansas, Brownback is taking a long-term view.
“There’s an old German saying they say in the farm communities that many a barn is built a house but never a house a barn. Have some of you heard this one? Nobody knows this one?” Brownback said. “What a great thought. You’ve got to invest, you’ve got to build before you can consume. In our society today, kind of, we’re backwards on this.”
Read more from The Garden City Telegram here.