Kansas Republicans to Mississippi: Use us as a cautionary tale
July 5th, 2017
By Adam Ganucheau | Mississippi Today
Kansas Gov. Sam Brownback beamed on MSNBC’s Morning Joe program on June 19, 2012, just days after his state passed its largest-ever tax cut.
“We’ll see how it works. We’ll have a real live experiment,” said Brownback, a conservative Republican. “We’re right next to some other states that haven’t lowered taxes. … You’ll get the chance to see how this impacts the particular experimental area. I think Kansas is going to do well.”
Brownback’s experiment failed, and his state’s economy did not do well. Last month, the Republican-controlled Kansas Legislature voted to undo most of his 2012 tax reform.
As Mississippi begins implementing its largest-ever tax cut, which like the cuts in Kansas are projected to reduce the state’s largest revenue source by hundreds of millions of dollars, Republicans in Kansas offer some words of advice and warning to Mississippians:
• “If Mississippi fails to pay attention to what’s going on here, they do that at their peril,” said Kansas Sen. Randall Hardy, a Republican who was elected in 2016 on the sole platform of fixing the state’s tax code. “Tax cuts, especially significant ones, should be looked at very carefully before implementing them. Our experience here was not positive. The desired results never happened. We did not see any of the increases in job creation that were supposed to happen, we did not see the tax rolls increase.”
• “You have to take the long-term view — are revenues and expenses going to balance?” said Kansas Rep. Steven Johnson, the Republican chairman of the Kansas House Taxation Committee. “I’d like to decide we could cut $500 million. But it comes down to: Do you have the spending cuts to offset a reduction in taxes? And you need to set about it very quickly. We waited too long, which hurt us badly.”
• “Do it slow, make sure you stay flexible, and make sure you hit your targets,” said Kansas Sen. Robert Olson, a Republican who voted against rolling back the 2012 policy. “When you don’t, have some language in (the law) to suspend it for a year until you hit your targets. Make sure your economy is growing. Try to have a number there that if it doesn’t hit that, stop the cut until the funding’s there.”
• “Use us a cautionary tale,” said Kansas state Rep. Melissa Rooker, a Republican who was elected for the first time in 2012 on the platform of restructuring the state’s tax code and balancing the state’s budget. “I think there’s a difference between the notion of shrinking the size of government and right-sizing government. I’m all for efficient use of taxpayer dollars. But when you cut too deeply, you cut past the point of efficiency.”
When Republicans in Kansas voted to roll back Brownback’s plan, they voted to raise taxes, directly countering a key conservative principle. Kansas’ budget problems in the wake of the tax cut were just too great, causing intense backlash from Kansas’ citizens who were affected in several ways.
Kansas ended the 2017 fiscal year with a $280 million budget shortfall. An estimated 3,000 full-time state employees have been laid off.
The Kansas Supreme Court ordered the Legislature to spend more money on public education and stop the mid-year budget cuts.
Kansas emptied about $1.5 billion from its highway repair and construction fund to pay the bills for basic public services the past several years, which caused the state to cancel new infrastructure projects and lessened its ability to maintain its current roads.
Kansas delayed pension payments to recipients of the state employees’ retirement fund. The state mental hospital lost its federal certification in part over financial concerns. Kansas’ Medicaid system was cut, affecting its ability to serve Kansans. The Legislature swept special funds, fees and assessments and other one-time moneys into its general fund in efforts to balance its budget.
Kansas’ 2012 tax cut and Mississippi’s “Taxpayer Pay Raise Act” differ in some key ways. Kansas eliminated its income tax and substantially lowered the number of companies that paid income taxes. Mississippi is eliminating its lowest income tax bracket, corporate franchise tax and certain self-employment taxes.
In Kansas, many small companies were immediately allowed to stop paying income tax. In Mississippi, companies large and small will pay less on franchise tax, or a tax on capital, over the course of 10 years. Then starting in 2028, companies with a Mississippi presence will pay no franchise tax at all.
That 10-year phase-out will “allow the state’s budget to gradually handle the revenue loss from this tax,” said Nicole Kaeding, an economist at the Washington-based Tax Foundation and an adviser to Mississippi legislative leadership
“What Kansas did was not good policy,” Kaeding says. “There’s a difference between a tax cut and a structural tax change that might or might not cover revenue. Folks in Mississippi shouldn’t be afraid of what happened in Kansas. Instead, I think it should be viewed as a way forward saying, ‘This is what happens when you take a good approach to tax policy.’ ”
Other economists disagree. Some of them, including Mississippi state economist Darrin Webb, have expressed concerns about how the tax cut will affect revenue, regardless of the phase-out period, and have questioned whether the tax cut will create economic growth as leaders have promised. The state is projected to lose $415 million in revenue during the 10-year phase-out, according to Department of Revenue and Legislative Budget Office estimates.
In addition, after fiscal year 2028 the state will be losing $415 million each year in revenue from the tax cuts.
“The recent rollback of tax cuts in Kansas was spurred by the fact that big, unaffordable tax cuts like this tax cut about to take effect in Mississippi did not deliver the promised results, cost more than what was estimated, and required harmful cuts for schools and other public services the people of Kansas rely on,” said Sara Miller, senior policy analyst at Mississippi-based Hope Policy Institute. “We don’t have to wonder what the results of our tax cut will be, especially considering the current state budget crisis in part due to several other tax cuts enacted in Mississippi.”
Lower-than-expected tax revenue collections in the past two fiscal years have forced leaders to cut state agency budgets five times mid-year. Lawmakers passed a budget for this new fiscal year, which began July 1, that was nearly 5 percent less than last year’s spending plan.
For the second straight year, tax collections in the fiscal year that ended June 30 fell short of the previous fiscal year’s collections, due in part to 50 earlier tax cuts passed since 2012.
Several agencies and departments already have had to lay off employees and cut public services to offset budget reductions. Gov. Phil Bryant cut the usually exempted Mississippi Adequate Education Program, the public school funding formula, last fiscal year.
Economic growth in Mississippi is expected to take up much of the slack in tax revenue reductions — the same was projected in Kansas’ 2012 tax cut — but the economies in both states typically increase in small increments and often at a pace slower than most other states.
Six economists, some favoring the cut and some opposing it, interviewed by Mississippi Today agree: Cuts with the size and scope as the Mississippi’s Taxpayer Pay Raise Act require a huge uptick in business activity coupled with state leaders cutting spending or finding other ways to plug budget holes the tax cut may leave.
Lt. Gov. Tate Reeves, House Speaker Philip Gunn and other leaders remain committed to finding inefficiencies in government and cutting its budget, a long-held tenet of their campaigns. This new fiscal year’s budget is 4.9 percent less than last fiscal year’s initial budget. (Several mid-year budget cuts to offset lagging revenues lowered the year’s actual spending total.)
“We are utilizing tax policy to decrease the rate of growth of government spending,” Reeves said in April.
Not only was the Kansas economy affected by the 2012 cut, the trajectory of Kansas politics also shifted because of it. Kansans, affected by and fed up with budget cuts, elected several moderate or “centrist” Republicans to the Legislature instead of the traditional conservative Republican incumbents in 2016, the most recent statewide election.
Kansas Democrats, who also benefited from the tax cut fallout in the 2016 election, are in we-told-you-so mode. Some conservative Republican lawmakers, after realizing the pressures from their constituents were mounting, shifted their positions on the tax cut and turned from Brownback.
Ultimately, that new set of moderate Republicans was influential enough in policy and number to swing the vote in both the House and Senate to undo Brownback’s policy in early June.
“I think the breaking point for our citizens was that the level of harm and damage to state services became visible to the people,” Kansas Rep. Rooker said. “What we’re doing is not at all what constitutes conservative fiscal money management. I think it’s reckless. And in 2016, the voting public responded to that.”
Editor’s note: After this story was published, Mississippi Today was made aware of a 2014 article co-authored by Nicole Kaeding published on the National Review website that praised Kansas Gov. Sam Brownback’s 2012 tax policy. Her employer at the time, the Cato Institute, gave Brownback one of four “A” ratings for governors, “based on their efforts to restrain government since 2012.”
Kaeding later told Mississippi Today that additional evidence “on the ineffective nature of those tax cuts,” particularly Kansas’ pass-through exemptions, has been made known since her article was published in 2014.
“The Cato Report Card — whose methodology I did not design — was only measuring tax changes in terms of their magnitude, not their structure,” Kaeding said in an email.