March 7, 2015
Gov. Sam Brownback’s economic advisers and a pair of organizations that don’t share the Republican’s tax policy vision are engaged in a conflict featuring charts, graphs and spreadsheets as key instruments of persuasion.
It requires a dive into statistical spin placed on first-time business tax return filers versus depictions of Kansas’ gross state product. Debate tap dances around interpretation of unemployment trends. There’s dueling over income growth among small businesses and wage growth among private employers.
“We’ve got a lot of healthy indicators in the Kansas economy. The underlying numbers, you’ve got to think, are pretty good,” said Nick Jordan, secretary of the Kansas Department of Revenue and a prominent Cabinet adherent of the governor’s strategy.
In another corner stands Bernie Koch, executive director of the Kansas Economic Progress Council.
“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,” Koch said.
This tussle without terminus arises from legislation signed into law by Brownback in 2012 and 2013 repealing the state income tax for 280,000 business owners and 50,000 farmers while also aggressively diminishing individual income tax rates.
The Brownback administration promised the package would trigger a job-growth sensation worthy of national admiration. The governor described the GOP-driven intervention as a life-saving shot to the heart of a state economy punished by heavy taxation and weakened by recession. He subsequently recast expectations by saying it was akin to methodical microsurgery rather than an ambulance run.
He won re-election in November by convincing voters supply-side principles — income tax cuts inspire job growth to produce sufficient tax revenue — were building a foundation of prosperity.
On Monday, Jordan’s revenue department will deliver to the House Tax Committee a PowerPoint-inspired presentation about how the governor’s approach fit the times. No other testimony is scheduled at the committee’s “informational” hearing, a designation that typically guarantees absence of dissenting voices.
“We have chosen the path of lower taxes on productivity and a smaller, more efficient government relying more on consumption taxes,” said Richard Carlson, a legislative liaison for the revenue department and a former House tax committee chairman.
In addition to championing income tax reductions, Brownback led the political effort in 2013 to make permanent what was to have been a temporary, three-year surge in the statewide sales tax. Instead of retaining the elevated 6.3 percent in perpetuity, he settled for 6.1 percent. Kansas’ rate was to have reset at 5.7 percent.
Beyond the Capitol, analysts at the Kansas Center for Economic Growth, of Topeka, and the Kansas Economic Progress Council, of Wichita, are convinced the governor oversold the income tax overhaul and drained the state treasury of hundreds of millions of dollars in a bid to prove himself right.
Annie McKay, executive director of the Center for Economic Growth, said the Governor’s Council of Economic Advisors didn’t make public in 2014 three of four economic status updates generated by the panel. Copies of the council’s May, August and November reports were shelved during the campaign season, she said.
“Seems odd given the claims of how well the Kansas economy is doing,” McKay said.
The 2015 Legislature is in the process of confronting an estimated $600 million state budget deficit in the upcoming fiscal year. In January, Brownback proposed $210 million in income, cigarette and tobacco tax hikes to help fill this crater. Over a five-year period, his package, including large reductions in tax exemptions, would net $2 billion in extra revenue for the state.
Brownback cut state aid to higher education and K-12 schools while relying primarily on cash transfers from transportation and others areas of the budget to fill a $300 million shortfall in the current fiscal year.
Brownback, Jordan and Carlson lean on the state’s 4.2 percent unemployment rate as persuasive evidence the economy was plowing ground in the proper direction. In January, the national rate was 5.7 percent. Kansas’ rate was 4.7 percent in January 2014.
“We’re at 4 percent,” said Jordan, the revenue secretary. “We haven’t been there since April 2008.”
McKay said decline in the state’s overall unemployment figure was encouraging, but the jobless percentage in Kansas typically stayed under the U.S. level and had remained on par with rates in a six-state region over the past two decades.
McKay said focusing on unemployment didn’t take into account Kansas lagged in the growth rate of private-sector employment in the region. She said the state had a recent surge in issuance of building permits, but continued to scuffle with population growth, private industry wage growth and production of goods and services.
For example, McKay pointed to a recently revealed governor’s economic council report showing a 3.7 percent increase in Kansas’ gross state product from 2012 to 2013. Expansion in the six-state region was 5 percent.
“Manufacturing employment has dropped in Kansas,” McKay said, “while manufacturing jobs elsewhere in the region are growing.”
Jordan said growth of small business income in Kansas compared favorably to Colorado, Missouri, Nebraska and Oklahoma. In the first three quarters of 2014, he said, Kansas topped each of those states as well as the national average.
The Kansas Department of Labor released a report Friday indicating private, nonfarm employment in the state grew more quickly in 2014 than previously thought. Based on federal statistics, last year’s average monthly rate was 1.9 percent higher than the average in 2013. The state’s rate was 1.8 percent in 2012.
Jordan said elimination of income tax on owners of 330,000 business owners helped inspire development of small businesses in Kansas. There were 8,600 first-time state income tax filers representing $465 million in new Kansas income, the revenue secretary said.
Read more from the Topeka Capital Journal here.