March 26, 2018
Assistant Research Analyst Michael Raven sat down to answer a few questions about the Kansas Center for Economic Growth’s latest paper, which takes on the argument that a “rural recession” erased the effects Governor Sam Brownback’s tax “experiment.”
“Lay of the land: Understanding commodity prices, tax policy, and the Kansas economy” comes out today.
Much has been written about Kansas’ experience with supply-side tax cuts. Why work on this paper?
When thinking about the last few years, it became clear that Governor Brownback’s tax experiment was shrouded in smoke and mirrors. He argued that Kansas’ poor economic performance could be explained away by global commodity price declines. The explanation was simple and appealed to many people’s understanding of how the Kansas economy works.
But explanation was wrong. Looking at the numbers, it was clear that declines in the farming and energy sectors weren’t enough to cause Kansas’ budget problems. The Brownback tax cuts were the principal cause.
How has the agriculture sector of Kansas fared over the last few years?
Farm income in our state was doing well coming out of the Great Recession. However, as yields increased across the globe, the market became saturated. Commodity prices declined, which hit Kansas between 2014 and 2015.
But Kansas wasn’t alone, and this brief compares us with other regional, agriculturally-oriented states. Kansas’ farm earnings decline was smaller than most regional states — and the nation as a whole. Farm income in Kansas made up around 13 percent of the state’s gross state product. In other states, like Iowa or Nebraska, farm income is more than 20 percent.
Iowa maintained revenue surpluses almost every year between 2011 and 2017, even though its farm earnings were hit much harder and farm income made up a larger part of the state’s gross state product. Kansas experienced a giant revenue gap on top of the commodity declines.
What role did oil play in all of this?
Oil production in Kansas dropped as the global oil market saw a glut. A variety of factors were involved, including decreased consumption in Europe and China, new technologies in the United States, and increased production from Saudi Arabia. The declines reduced Kansas’ severance tax receipts, but that decrease pales in comparison to individual income tax revenue losses from the tax “experiment.”
Did Kansas actually experience a “rural recession”?
Rural Kansas did face challenges. State aid to local governments was slashed after the Brownback tax cuts. The “experiment” hurt town and cities throughout the state, but if your city was in an area whose economy depended on agriculture or energy, then those commodity declines hurt even more. These areas were squeezed between increasing local taxes and decreasing revenue.
What lessons can lawmakers and the general public learn from your report?
Ultimately, this paper should be viewed as a cautionary tale about how false narratives can undercut the political process. With school finance and a host of other issues facing the legislature, Kansans should beware pithy accounts that appeal to emotion rather than fact.