November 22, 2016
Gov. Sam Brownback said in the runup to the November election that supply-side income tax cuts had proven to be a success in Kansas because of rising personal income tax collections.
He said on a radio program in October that growing revenue from individual Kansas taxpayers demonstrated the economic wisdom of moving in 2012 to eliminate the state income tax on owners of 330,000 businesses and to reduce personal income tax rates.
“The one piece that is working, that we see increases in revenue to the state of Kansas, is personal income tax,” Brownback said. “That’s the one we cut. That’s the one where we put a pro-growth strategy.”
Fact Meter finds the governor’s statement to be false. Documents from the nonpartisan Kansas Legislative Research Department and the Kansas Division of the Budget show individual income tax revenue in the 2016 fiscal year, which ended in June, declined from the previous fiscal year. Year-to-year shrinkage in this key taxation category amounted to nearly $30 million.
In the 2012 fiscal year, Kansans paid $2.908 billion in individual income taxes. The total in 2013 was slightly higher — $2.931 billion. Full implementation of supply-side tax reductions adopted by the GOP-dominated Legislature and signed into law by Brownback led to a sharp decline in fiscal year 2014 individual income tax receipts to $2.218 billion — a loss of $700 million.
Collection of individual income tax by the state government rebounded in fiscal year 2015, climbing to $2.277 billion. When accounting books closed on fiscal year 2016, the annual tally stood at $2.248 billion.
Shawn Sullivan, the governor’s budget director, said a Fact Meter designation of false was inappropriate because the governor was referring to improvements in income tax collections during the initial months of the current fiscal year. It was Brownback’s intention to highlight partial-year gains in income tax collections and not draw attention to last fiscal year’s slippage, he said.
Sullivan said state income tax revenue was nearly 6 percent higher in the first four months of this fiscal year than in the same period last fiscal year.
However, the latest Kansas revenue projection for the 2017 fiscal year, which started in July, indicated individual income tax collections would be $97 million less than state lawmakers assumed in April. That would result in receipts settling at $2.28 billion for the year.
Sen. Jim Denning, R-Overland Park, said downsizing income tax revenue expectations before the 2017 legislative session was a reasonably conservative decision. In the past, he said, state forecasters chose the “most optimistic” theory of revenue collections, and the state repeatedly fell short of those targets.
Denning said adjustments to Kansas tax law needed to occur, but legislators had to keep in mind the state was in a “deep rural recession” because of weak oil prices and low crop and livestock prices.
One consequence of the November revenue update was that the Legislature and Brownback must now address a $345 million deficit in the current budget. The assessment also pointed to deeper financial problems in fiscal year 2018, absent expansion of the state’s revenue.
“Governor Brownback’s tax experiment has simply not delivered the economic boon he promised,” said Heidi Holliday, executive director of the Kansas Center for Economic Growth, an organization critical of the governor’s strategy to eventually eliminate state income taxes.
The state’s revenue picture would be more dire if the state hadn’t generated new revenue by eliminating tax deductions and elevating the statewide sales tax rate.
Brownback said he would submit in January a plan for resolving the immediate revenue shortfall and to address the crater in next year’s budget. Republican and Democratic legislators said they would expect the remedies to include spending cuts, tax reform and, possibly, state employee layoffs.
In 2012, Brownback was bullish about prospects of his supply-side economic program.
“Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy,” the governor said at the time. “Kansas’ lost decade is over. No longer will we be satisfied with our children moving to another state for better opportunities.”
The governor said during his successful 2014 re-election campaign that skepticism about economic value of aggressive income tax cuts was misplaced.
“We’re in great shape financially,” Brownback said during that campaign. “I know there are a number of people yelling differently, but the numbers just don’t support what they’re saying. They’re just trying to paint a ‘Chicken Little sky is falling’ situation, which is not true. It’s a bunch of lies.”
Read more from the Topeka Capital Journal here.