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Aug. 14, 2012
OVERLAND PARK Gov. Sam Brownback was joined today by economist Arthur Laffer at an event staged in Overland Park to advertise the potential benefits of the tax cuts the governor signed into law in May.
"This will lead to enormous prosperity," Laffer predicted, and puts Kansas at the forefront of a "revolution" that is under way in several states led by conservative Republican governors who are working to cut taxes and trim the size of government.
"You are moving into the pro-growth world, and believe me it will work," Laffer told the crowd of about 260 people at a conference hall on the campus of Johnson County Community College. "If you want to make your state healthy, go for a zero income tax."
The governor described the tax cuts as a "shot of adrenaline to the heart" of the state's economy and shared the dais throughout the afternoon with panelists who largely agreed with him, though Tom Ruhe, vice president of entrepreneurship at Kansas City's Kauffman Foundation, said surveys showed the biggest obstacle to business expansion cited among the nation's leading new companies was the difficulty finding good employees. Taxes and government regulation were lesser concerns, he said.
The crowd seemed largely in step with the comments from the governor and Laffer.
But their assertions were challenged by Thomas Handley, vice president of L&E Actuaries and Consultants, an Overland Park firm.
He asked Brownback what would happen to school funding as a result of the lost tax revenue.
"When people decide whether they are going to come to this state and grow, they don't always look at taxes," he said. "They look at schools. How are we going to address the other shoe that needs to drop? How are you going to address the next year's budget?"
Brownback said he thought the tax breaks would generate enough economic growth to ward off major cuts to "core" government services, including schools and public safety programs.
"I think the growth will come before the cuts come," the governor said.
The governor inked the biggest tax cut in state history as Kansas started emerging from the global recession that began in 2007. Both critics and supporters of the law say it will force steep cuts in state spending. But critics say they doubt it will prime the economy the way Laffer and Brownback have forecasted, and that even if it does, it won't be enough to offset the $4.5 billion over five years in projected foregone tax collections.
Dave Trabert, president of the conservative Kansas Policy Institute, said after the conference that he would like to see the governor propose a one-time, 8.5 percent reduction in state spending (about $500 million) to overcome the projected revenue shortfall and to make those reductions sooner rather than later.
Starting in January, the new tax law will reduce individual income tax rates and exempt about 190,000 businesses from income tax. It also will exempt trust, farm and rental incomes.
It also will collapse the state's current three income tax brackets to two. The current top rate of 6.45 percent will drop to 4.9 percent in 2013. The bottom rate will drop from 3.5 percent to 3 percent.
It will exempt the non-wage earnings of sole proprietorships, limited liability and so-called Subchapter-S corporations. But it would change nothing for so-called C corporations such as Walmart or General Motors.
Rep. Nile Dillmore of Wichita, the ranking Democrat on the House tax committee, wasn't at the gathering but has been a vocal critic of the new law, which he has called "fiscally irresponsible."
When the proposal was being debated by the Legislature, he objected to the fact that the law would exempt an entire class of Kansans, effectively leaving only people on payrolls to pay income tax.
"It's very unhealthy, to say the least, to create a class of taxpayer who simply because of the type of form they file is exempted from the responsibility that everyone else has to fund basic government services," he said. "That stands the whole notion of taxation without representation on its head. Now you have representation with no taxation."
Among the panelists at the event was Gary Allerheiligen, former president of the Kansas Society of CPAs. He said the law contained a significant technical error that would require quick repair by the Legislature or else businesses would not be able to benefit from the law the way the governor envisioned.
Revenue Secretary Nick Jordan said he was aware of the law's unintended glitches and that he will be prepared to ask legislators for the needed fixes in January.
The KHI News Service is an editorially independent initiative of the Kansas Health Institute and is committed to timely, objective and in-depth coverage of health issues and the policy making environment. Find more about the News Service at khi.org/newsservice or contact us at (785) 783-2529.