Much national attention has portrayed the upcoming election for Kansas governor as a referendum on the efficacy of tax reform, but that really isn’t the issue. The real issue is whether government should spend whatever it wants or provide quality services at a better price in order to keep taxes low. Unfortunately, some people simply aren’t going to allow that cultural shift to happen – even if it means distorting the truth.
Conservative governors are condescendingly being warned against blithely peddling tax cuts to boost economic growth. They are admonished for daring to reduce taxes because government needs every dollar to nurture growth. One can almost envision the elites angrily chastising conservatives for not being obedient disciples of their big-government teachings. “Hey, you didn’t build that! Have you forgotten everything we taught you? How dare you rob government of its due.”
They falsely decry “draconian” spending cuts while Kansas is setting a new spending record this year. They rail that per-pupil education expenditures have been “devastated” when in reality, per-pupil expenditures set records each of the last two years and will set another new record this year at $13,268 – up from $12,330 in 2010.
If trailing national economic metrics is a sign of failure, where was the outrage in Kathleen Sebelius’ first term? Private sector jobs in Kansas grew a dismal 1.3 percent between 2002 and 2006, while the nation grew 4.9 percent. Kansas’ long tradition of economic stagnation is actually the reason for tax reform and reversing that trend won’t happen in a year or two.
The early signs, though, are encouraging. The private sector only added 2.3 percent more jobs between 1998 and 2012 while our income-taxing peers gained 3.4 percent; Kansas was only 68 percent as good as our peers in the past. But since December 2012, Kansas is at 88 percent of our peers’ growth, growing 2.5 percent versus 2.9 percent. Private sector GDP growth beat the national average last year and Kansas had the fourteenth best personal income growth rate in the second quarter of 2014. Creighton University’s Mid-America Business Conditions Index has Kansas leading a nine-state region for September.
So how does a state rationally reduce taxes? James Carville might say, ‘It’s the spending, stupid.’ Every state provides education, social services, highways, etc. but the low-tax states provide those services at a better price. In 2012, the states that tax income spent 49 percent more per-resident than those without an income tax. Kansas was 37 percent higher.
Kansas does have a structural budget issue because of bi-partisan resistance to reducing the cost of government when taxes were reduced. Fortunately, the budget can be balanced without any service reductions or tax increases by making better use of existing resources. Our 5-year plan identifies large, unnecessary cash surpluses that could be returned to the General Fund. A half billion dollars of sales taxes are annually sent directly to the Department of Transportation without being budgeted, and some of that money results in surplus balances; annual transfers can be reduced without impacting highway projects. Placing new hires in a 401(k) plan would save $147 million in the first four years.
Implementing these and a few other opportunities would more than resolve the structural issue and leave very healthy ending balances. And even if revenue estimates decline, state government would only need to operate less than 5 percent more efficiently under our plan.
Kansas and other states can reduce taxes by providing the same or better quality service at a better price. Legislators and media just need to remember that government is supposed to work for citizens, not the other way around.
Dave Trabert is the president of the Kansas Policy Institute, a free market think tank based in Wichita