There’s still no free lunch: Impact of massive tax cuts in Kansas offers a warning to Oklahoma

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by March 27th, 2014 Posted in , ,

ks_socialmediagraphic_finalAs Oklahoma considers tax cuts similar to those that took effect in Kansas last year, a new report shows that following in Kansas’s footsteps is a bad idea. 

Kansas’s massive tax cuts have failed to improve the state’s economic performance, as they have deepened the damage done by the recession to schools, colleges and universities, and other key services according to the new report from the nonpartisan, Washington, DC-based Center on Budget and Policy Priorities. 

Those arguing for more tax cuts in Oklahoma, even before we restore huge cuts to education funding, have claimed the tax cuts would boost the economy so much they would pay for themselves. Faced with the reality that large majorities of Oklahomans oppose cutting funding for services in exchange for tax cuts, the tax cut boosters have tried to promise a free lunch. The news out of Kansas exposes how weak that promise really is.

The report examines Kansas’s performance on a number of measures in the first year after the tax cuts there took effect.  It finds job growth in Kansas has been slower than the national average since the tax cuts took effect and its labor force has actually shrunk during that period. The number of new businesses in Kansas grew more slowly last year than in the year before the tax cuts took effect.

In 2012, Kansas reduced its top income tax rate from 6.45 percent to 4.9 percent. Kansas also exempted many business owners’ income from taxation. At the same time, the state eliminated a number of tax credits, including ones that help low-income families, such as a rebate for sales taxes paid on food. In 2013, Kansas scheduled deeper income tax cuts based on a revenue trigger, while canceling a scheduled sales tax decrease.

The tax debate in Kansas has unfortunately mirrored Oklahoma in its obsession with reducing the top income tax rate, even though that does little to nothing for most families. Oklahoma’s proposed reduction of the top income tax rate to 5 percent would do nothing for 41 percent of Oklahoma households and provide an average of just $29 to a middle-income families, even as it reduces funding for services by $135 million. But we all could pay for the tax cut through increases in other taxes and fees and lost funding for important services. That’s what we’re seeing in Kansas, where a “reverse Robin Hood” tax policies have increased taxes on low- and moderate-families to cover the cost of huge tax cuts that mostly benefit the already wealthy.

The report also shows that Kansas’s huge tax cuts have left the state’s schools stuck in the recession and continuing to decline. School districts across the state have had to lay off teachers and counselors and cut programs for students since the recession hit, and the state’s Supreme Court ruled school funding levels have fallen so low that they are unconstitutional. Kansas Governor Brownback’s budget proposal for next year would further shrink school funding, leaving per-student spending at 17 percent less than before the recession. Kansas’s colleges and universities, courts, local libraries, health departments, and other key services also face a continued decline in state funding despite the end of the recession.

School funding in Oklahoma has declined even more over the same period. Since 2008, Oklahoma’s school funding formula per pupil is down nearly 23 percent after inflation, the largest decrease among all 50 states.

“The long run effects of the Kansas tax cuts are extremely troubling,” said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities and co-author of the report.  “High-quality schools and colleges are a crucial building block of economic growth.  They determine the quality of the state’s future workforce and shape the minds of future leaders and entrepreneurs.  By shortchanging these priorities, Kansas – and any state that follows in its footsteps – is setting itself up for trouble down the road.”

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