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Kansas Tax Patches Fail as Tea-Party Experiment Riles Residents

Kansas Tax Patches Fail as Tea-Party Experiment Riles Residents

  • Revenue projections forecast more bleeding from state treasury
  • Republican Brownback more unpopular in the state than Obama

Kansas lawmakers in June approved the largest revenue increase in state history thinking they’d closed a $400 million hole created by income-tax cuts Republican Governor Sam Brownback pushed through three years earlier. They hadn’t.

The state took in $66 million less than expected in the three months ending Sept. 30, and the turmoil is expected to worsen next week when a panel of economists issues its annual projections. They are likely to confirm the need for the Republican-controlled legislature to adjust the budget again because promised benefits from the decrease in taxes still haven’t materialized.

"The income-tax cuts passed in 2012 and ’13 were way too steep and way too quick," said Senator Jeff Longbine, a Republican from Emporia. "The revenue continues to decline and we have to do something."

The state’s budget drama encapsulates a broader ideological debate over the influence that tax cuts have on economic performance. Republican presidential candidates have each endorsed federal tax reductions in the belief that they will spur investment. In Kansas, the idea is being tested as residents await the promised jolt.

"This is absolutely a cautionary tale, because it’s basically cutting revenue without figuring out how to cut expenditures," said Norton Francis, senior research associate at the Urban-Brookings Tax Policy Center. "At the federal level, it’s different because they can deficit-finance, but you can’t be a deficit hawk and a tax cutter at the same time."

Brownback, a former U.S. senator elected governor in 2010, embraced the supply-side economics theory of tax-cutting and said Kansas could become the Texas of the grasslands by luring businesses with lower income levies. His intent is to eventually eliminate the tax. Yet Kansas has fallen short of revenue projections almost every month since the cuts were enacted.

"They’re still in the soup," said Duane Goossen, a former state budget director who served under Republican and Democratic governors.

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Eileen Hawley, a spokeswoman for Brownback, didn’t respond to an e-mail seeking a comment on Brownback’s plans to deal with the deficit. The governor said this month that spending cuts wouldn’t be an option, nor new taxes.

"We’re not going that route," Brownback was quoted as saying in the Topeka Capital-Journal. He has counseled taking a long view.

"We can be patient and give it more time if the revenue numbers were meeting expectations," Longbine said. "But they’re not. We have to be fiscally responsible."

Making Do

In 2012, the legislature cut the top income-tax rate by 26 percent, increased standard deductions for married and single head-of-household filers and eliminated levies on about 191,000 small-business owners. More than 330,000 filers identified themselves as small businesses, however, causing larger-than-forecast revenue losses.

Lawmakers moved to find more money without rolling back the cuts, acceding to Brownback’s strategy of shifting taxation from earnings to consumption.

Less than four months ago, the legislature raised the sales tax to 6.5 percent from 6.15 percent, and boosted the cigarette levy by 50 cents a pack. Lawmakers eliminated most income-tax deductions and halved property-tax and mortgage-interest deductions. They enacted a six-week tax amnesty program, allowing laggards to pay without penalties, anticipating it would generate $30 million.

The effort included cuts to education and borrowing to make required pension payments. From 2013 through the 2016 fiscal years, more than $400 million was siphoned from the highway fund, which is used for road construction and maintenance.

"THIS IS HIGHWAY ROBBERY," says a billboard along the Kansas Turnpike sponsored by the Kansas Contractors Association. It features a man in a ski mask, about to point his handgun.

"$1 million per day taken from roads and bridges," the billboard reads.

In an Aug. 13 report, Moody’s Investors Service assigned an Aa2 rating to the state transportation department’s highway revenue bonds. The company noted the state’s practice of tapping transportation funds, calling it "a key weakness."

Bob Totten, executive vice president of the contractors’ group, said highway maintenance has been scaled back sharply. Instead of repairing 115 bridges annually, this year will be 58. Instead of 1,200 miles of roads maintained, it’ll be about 200 or less, Totten said.

"The tax cuts might work, but I think it’ll take 11 or 12 years," Totten said. "We’re not a tourist state, we don’t bring in a lot of people. And we haven’t had a beach in Kansas in more than 3 million years."

Ouch, Double Ouch

Brownback, who won re-election last November, is paying a price. Three-fifths of Kansans surveyed said his income-tax cuts have been "a failure" or "a tremendous failure," according to the Docking Institute of Public Affairs at Fort Hays State University.

The poll released Oct. 23 also showed the governor is less popular in Kansas than Democratic President Barack Obama. Eighteen percent said they were satisfied with Brownback’s performance, compared to 28 percent for Obama.

Hawley, the Brownback spokeswoman, has dismissed the poll results.

“Less than one year ago, there was an election and the people of Kansas chose between two candidates,” she told the Capital-Journal on Oct. 23. "Polls don’t accurately reflect the views of Kansans; elections do.”

Lawmakers aren’t scheduled to return to the capitol until January. The Nov. 6 release of revenue projections, though, is expected to increase the sense of urgency.

"In a normal political universe, poll numbers like this should be pushing the legislature to do something," said Bob Beatty, a political science professor at Washburn University in Topeka, the capital. "But the disconnect between the policies coming out of the capital and public opinion is so vast."

Totten said he doesn’t expect big changes in fiscal policy until 2019, after term limits force Brownback to leave office.

"The new governor will have the hellacious duty of having to raise taxes," Totten said. "And he’ll serve one term."