Whither Kansas, & Will NC Follow?

“Hope you’ll visit us in Kansas. We need your sales tax revenue.”

So said Annie McKay, Executive Director of of the Kansas Center for Economic Growth at yesterday’s Crucial Conversation held by NC Policy Watch. The room was packed with North Carolinians concerned for our state’s financial health in the wake of drastic tax changes enacted by NCGA leadership.

And who hasn’t been reading about Kansas? The Land of the Yellow Brick Road is in trouble, and it is unclear what it will take to save it.

Annie McKay and Duane Goosen, former Kansas lawmaker and state Budget Director, explained the financial issues facing their state, issues likely to arise in North Carolina as our NCGA leadership follows the Kansas/Koch model for state funding.

The first comments of note were plain common sense. It is hard to cut back the cost of government when the cost of goods and services follows an upward spiral. We are all paying more for consumer goods than we used to. Not only do actual costs go up, but population increases, requiring more services. More people, higher costs. More drivers means more people getting driver’s licenses, requiring more employees at more DMV offices. How can government become smaller when there are more people to be served?

In Kansas, cutting income taxes and raising some sales taxes has not paid off. The motto there is March to Zero, as the conservative GOP-controlled legislature is determined to get both personal and corporate income tax rates down to nothing, relying upon business growth and sales tax to bring in the state’s revenue.

In cutting personal income tax, the Kansas legislature decreed that small businesses and partnerships would be tax exempt. Totally. Their plan allowed for 191,000 small businesses in the state which turned out to be greatly underestimated. And they totally forgot to count the farmers that operate their farms as LLCs, or, small businesses. The real number of small businesses was 330,000, cutting their revenues even more than expected.

Kansas, like NC, did away with the tax credits available to lower income people, such as the child care tax credit, and many low income people found their taxes actually went up. But unlike NC, they kept the EITC. Most tax cuts implemented in Kansas, like those in NC, benefited more wealthy citizens.

Now, the state’s reserves are gone. Their bond rating has been lowered. Not enough revenue is coming in to cover the already drastically cut costs of running the state. The Governor and legislature have taken from the highway fund, education trusts and the state’s reserve fund to put cash into the general fund.

Kansas has lost more income due to the tax cuts than it did because of the Great Recession. Localities are picking up the tab. Cities and towns in Kansas can raise their property taxes without legislative approval, but cannot raise the sales tax. And they pay sales tax on all food items. How does this affect the various counties in Kansas? The urban-rural divide is exasperated by this tax change.

“Of the 20 counties with the highest increases in property taxes, 17 were rural.”

When the Kansas legislature returns from their own spring break next week, they will begin considering an additional gas tax, and a surcharge on the income tax (a flat fee charged every tax payer) as methods of restoring funding to needed levels. The state’s pension fund is already underfunded and the state may have to further delay funding their employees’ retirement. Gov. Brownback wants to ‘rob Peter to pay Paul’ by taking $201 million from their health, environment and highway funds. Education has taken a heavy hit and may lose more. (This at a time when a district court ruled that the state has underfunded its public education system and must invest in it more.) Asking the rich to pay more is not even a consideration. The goal continues to be a move to tax consumption rather than income, claiming that will encourage savings and investment; a proposal that will never benefit the poor who live from paycheck to paycheck and cannot do either.

It seems America has lost its zeal for individual equality.

With all this going on, how did Brownback get re-elected? He sang a cheery song about “the sun is shining in Kansas, and don’t let anyone one else tell you different.” A week after his re-election, new revenue forecasts were published and the bottom fell out of their sunshine-covered economy.

Overall, about 4,200 citizens have moved out of state. “They have gambled away Kansas’ future. It’s as if Kansas had a full time job, then went part time, and now they can’t pay their bills and are using the credit cards to pay rent,” said Duane Goosen.

Before the tax changes were implemented, Gov. Brownback was asked how this new system would work. His reply, “I don’t know how it works, but it works.” Kansas’ economy has grown, but it is plodding along at about the same rate as other states in the union as we all recover from the Great Recession. The jobs that have been added are low-paying with few benefits. How long should society wait to see if benefits from these tax changes materialize? 10 years? 25? Do we, as a nation, want taxation that is fair to all citizens or one that offers reprieves only to the wealthy? Taxation, like a budget, should reflect our moral values. Are some 'more equal' than others?

Will NC legislators learn from mistakes made in Kansas? Those that do not study real history are doomed to repeat it. Citizens hear glowing reports from Koch-funded think tanks on the Koch's preferred principles of taxation--they want to believe, and have to see the actual results it to believe it. Like addicts, we have to hit bottom before we can see the truth. The Koch brothers and their followers want to take us to a world where we won’t go to watch Les Miserables because we will be living it. Only the destruction of our belief in their snake-water sales pitch will free us from false dreams so we can begin, once again, to create a world that is fair for all our children and grand-children.



It's the ALEC way

cut progressive, highly visible taxes such as the income tax and impose regressive, less noticeable taxes such as sales taxes.

And NC is going down the same path. Bills to broaden the sales tax will be heard this session.

"I will have a priority on building relationships with the minority caucus. I want to put substance behind those campaign speeches." -- Thom Tillis, Nov. 5, 2014

Getting closer.

The NC Justice Center is reporting that

SB 526, now under consideration, would take NC closer to Kansas through the following:

Amount to over $1.5 billion in lost revenue for public services and programs by providing deeper income tax cuts, including reducing the personal income tax rate from the current rate of 5.75 percent to 5.5 by 2017

Provide huge tax cuts to profitable corporations by further reducing the corporate income tax rate from 5 percent to 4 percent by 2017 and by changing the way profitable corporations can apportion their income

Increase subsidies for corporations by expanding the business incentives program

Kansas Gov. Sam Brownback (R)

Kansas Gov. Sam Brownback (R) proposed $136 million in taxes on health maintenance organizations as a way of closing the state's budget hole. Now, that proposal is in danger thanks to an angry managed health care company —Aetna, Inc.

According to The Wichita Eagle, leaders at Aetna are warning lawmakers that if Brownback's proposal goes into effect the healthcare company would be hit with $12 million in additional taxes and add $206 to an average HMO insurance policy holder's bill. Brownback's proposal is currently awaiting approval in a House-Senate conference committee.

The warning from Aetna is particularly significant given that it is the biggest of eight insurers that would be hit by Brownback's HMO tax.