Wednesday, July 28

In Kansas, responsible spending is the key to tax reform and job creation

By Dave Trabert, Kansas Policy Institute.

Responsible Spending is the Key to Tax Reform and Job Creation

Concern about the state’s ability to function if tax reform was “paid for” with spending reductions was a driving concern of the 2013 legislative session.  It’s a valid concern that has even been expressed by many people who favor tax reform.   Fortunately, the facts show those concerns are easily addressed.

Kansas Policy Institute heard those concerns over a year ago and did extensive research on the subject.  We discovered that States that Spend Less, Tax Less…and Grow More.  In fact, that was the title of an article in the Wall Street Journal that Todd and I co-authored.  As we explained, “Every state has public schools, social-service programs, prisons, etc. Some just find ways to provide essentially the same basket of services at lower prices.”

The WSJ article was based on 2011 state spending.  We’ve since updated the research with 2012 budgeted amounts for each state, which shows stunning differences in state spending levels.

It’s well established that keeping taxes low is the secret to having strong economic growth but some people believe that low taxes are a fluke of geography.  Conventional thinking (at least within government) says that low state taxes are dependent upon having access to unusual revenue sources, but that’s not it. A state could be awash in oil and gas severance taxes and still have a high tax burden if the government will not exercise restraint.   Sure enough, those opposed to tax reform tried to make the case that states without an income tax could do so because they had extensive oil & gas revenue (Texas) or booming tourism (Florida).  But we disproved that theory with facts.  Texas and Florida have low tax burdens because they keep spending under control; Kansas has higher taxes than those states because Kansas spends 57% and 62% more, respectively, on a per-capita basis.

Many legislators were encouraged by our research but there was still uncertainty about making the transition to responsible spending levels.  Once again, KPI showed how it can be done.  We published A Legislator’s Guide to Delivering Better Service at a Better Price and showed how existing carryover cash balances and other cash options could be used to ‘buy time’ to do thoughtful spending analysis and a review of all the taxpayer subsidies that are given to select businesses in the name of economic development.  We also shared how state and local governments across the nation are using privatization to provide more affordable services in Better Service, Better Price: How privatization can streamline government, improve services, and reduce costs for Kansas taxpayers.  Our privatization study was done in partnership with Reason Foundation; both Reason and KPI have offered our services to Governor Brownback free of charge to help guide the privatization review.

Unfortunately, the budget was largely balanced with a sales tax increase, smaller income tax deductions and wiping out the state’s cash reserves.  There were some spending adjustments but there were also increases; in fact, if not for $107 million in K-12 spending being transferred to the All Funds Budget and some FY 2014 spending being pushed into FY 2013, FY 2014 General Fund spending was only reduced by less than one percent.  SGF spending is scheduled to increase another $439 million by FY 2018 but it will likely be much higher.

The real KPERS deficit of at least $15 billion will require much higher funding if legislators don’t move away from the defined benefit plan.  There’s also a strong likelihood of higher Medicaid spending due to Obamacare.  Thank goodness Medicaid hasn’t been expanded in Kansas…well, at least not yet.  Indecision will hopefully soon become a firm “No, thanks.”

It’s not that spending can’t be reduced…it’s that too many legislators don’t want to deal with the backlash from special interest groups.  I recently sat in on a joint House / Senate public meeting where it was openly acknowledged that spending had been reduced by “as much as the members of both chambers could bear”.  It wasn’t that more couldn’t be done; there just wasn’t the will to do it.

States that spend less, tax less…and grow more.  States that overspend (like Kansas), overtax…and suffer economic stagnation.

Originally published here.