On Wednesday, the governor of Kansas was on Capitol Hill, arguing in support of the Republican tax-reform bill by claiming that cutting taxes in his state was effective at increasing jobs. In June, we looked at what actually happened in the state. That article follows.
From the moment he said it, Kansas Gov. Sam Brownback (R) took heat for calling his push to drastically cut taxes in his state a “real live experiment.” As a general rule, people like to have their experiments conducted in laboratories with safe controls, not on state finances that affect health care and education.
But Brownback was right. It was an experiment. And on Tuesday night, the Republican legislature in the state deemed it a failure, voting to override Brownback’s veto and increase income taxes cut under the 2012 bill.
Duane Goossen of the Kansas Center for Economic Growth walked The Washington Post through the numbers on Wednesday.
The tax-cut bill began to affect the state’s bottom line in the 2014 fiscal year (running from July 2013 to June 2014), Goossen said. From 2013 to 2014, the change in income tax rates meant $700 million less was coming into the state — a reduction of nearly a quarter of the revenue from that source.
Goossen, a former state budget director, said that, had those cuts not occurred, “we’d be collecting about a billion dollars more than we are now in income-tax receipts.”
Since the state has to have a balanced budget, the drop in revenue immediately forced the legislature to come up with ways to reduce spending. The state depleted its reserves, moved hundreds of millions from its highway fund to its general fund, borrowed money and raised its sales taxes.
Most notably, the state also cut spending on education.
Those cuts were significant enough that the Kansas Supreme Court found that the legislature was violating the state constitution by not “mak[ing] suitable provision for finance of the educational interests of the state.” That decision, released in early March, meant that the legislature had no choice but to find new revenue sources.
“The income-tax cuts were so deep that the state also had to do these other one-time things, and finally, now, after four years of that, the state is simply out of resources,” Goossen said. “The gap between expected revenue coming in and even a pretty conservative set of expenses — the gap for this next fiscal year is between $800 million and a billion dollars.” That’s out of a budget of about $6 billion.
Brownback’s promise was that the cuts would spur economic growth in the state. On that metric, too, the effort was a failure.
Contrast Kansas with the state of California and the country overall. Kansas has performed much worse than the country on job growth, relative to a January 2011 baseline. California has over-performed.
On economic growth, the same pattern holds. Kansas is doing worse than the rest of the nation; California, better.
Why single out California? Because as Kansas was performing its experiment, California was performing one of its own, putting into place a new tax on high-income residents in the state. Over the past few years, the state has seen budget surpluses, though that may change as two-thirds of states project upcoming deficits.
Look for the examples of California and Kansas to be cited in income-tax debates for decades to come. Sometimes, experiments don’t have the results you were looking for.