Saturday, September 25

Kansas tax reform

From Kansas Policy Institute:

Tax Foundation: Kansas Reforms a Mixed Bag
By Todd Davidson

The venerable Tax Foundation recently released an analysis of Kansas’ 2012 and 2013 tax reforms concluding that the reforms have been a mixed bag but a net positive.

Kansas Governor Sam Brownback has signed a new tax reform bill, addressing some drawbacks of last year’s legislative efforts and resulting in an improved tax code for the state…  Last year’s reform plans ultimately fell short of expectations due to flawed exemptions for so-called “pass-through” businesses as well as a lack of base-broadening which created an approximate $800 million revenue gap.< Although the bill is actually revenue-positive, the combined effect of both bills remains a net tax cut. After incorporating the 2012 and 2013 changes, as well as changes in state spending, the state now faces a budget gap of between $95 million and $182 million per year, a significant reduction from last year.

While we would have preferred the budget gap be addressed via a more efficient delivery of services, we do agree with the Tax Foundation that the combined 2012 and 2013 reforms result in a tax cut and that is a positive step for the Sunflower State. The analysis, by Joe Henchman and Scott Drenkard, points to the overwhelming evidence that taxes stunt economic growth:

We recently reviewed 26 peer-reviewed studies that have been written on the topic, and 23 of those studies find that increasing taxes hurts economic growth. The other three studies are inconclusive. What is more, all of these studies that were published in the last fifteen years conclude that higher taxes are associated with lower growth.

A study by the International Monetary Fund analyzed 170 instances of fiscal consolidation across the developed world and found that spending cuts are much less damaging to economic growth than tax increases. They found that a 1 percent cut in spending had an insignificant effect on growth, while a 1 percent increase in taxes reduced GDP by 1.3 percent after two years. The Kansas reforms over the last two years will result in hundreds of millions of dollars in tax cuts, and returning that money to the private sector will certainly produce long-term growth gains.

Tax Foundation economist Scott Drenkard concluded: “While legislation ultimately passed in Kansas has been a mixed bag over the past two years, and the end result is still a code that has a large carve out for pass-through income, the positive elements outweigh the negative elements.”