Presentation by Bernie Koch, director of the Kansas Economic Progress Council, given at the Taking Back Kansas convention on August 30, 2014, in Wichita, Kansas.

1. Taking Back Kansas
Why the Income Tax Cuts Hurt
More Than They Help
Bernie Koch
Kansas Economic Progress Council
August 30, 2014

2. What grows the economy?
 Economic freedom (regulations/taxes)
• Reliable legal systems
• The investment rate in plant and equipment,
and government infrastructure
• Human capital and efficient labor
• Technical innovation and improvement

3. What grows the economy?
Economic freedom and
reliable legal systems
Freedom to produce, trade and consume any
goods and services acquired without the use of force,
fraud or theft. This is embodied in the rule of law,
property rights and freedom of contract.
It is freedom of economic initiative.
Excessive taxes and regulation can hinder this.

4. What grows the economy?
The investment rate in plant and equipment
and government infrastructure

5. What grows the economy?
Human capital and efficient labor

6. What grows the economy?
Technical Innovation and improvement

7. Area Development site selection factors
1. Labor costs 90.8%
2. Highway accessibility 90.1%
3. Skilled labor availability 89.4%
4. Availability advanced ICT services 85.1%
5. Occupancy/construction costs 82.8%
6. Energy availability and costs 81.3%
7. Corporate tax rate 79.3%

8. Kansas Government Revenue Sources

10. Future Revenue Stream Restricted
Kansas Income Tax Rates
2012 2013 2014 2015 2016 2017 2018
Top Rate 6.45 & 6.25 4.9 4.8 4.6 4.6 4.6 3.9
Bottom Rate 3.5 3.0 2.7 2.7 2.4 2.3 2.3
Pass-through Business Income Exempt From Tax
2 Percent Limit on Future Revenue Growth

11. 2012 income tax legislation
Tax Credits Repealed
•food sales tax rebates
•adoption expenses
•agritourism
•child and dependent care expenses
•child day care expenses
•disabled access expenditures
•environmental compliance expenditures
•small employer health benefit plan contributions
•certain temporary assistance to family contributors
Homestead Program
Renters no longer eligible to participate in the Homestead
Property Tax Refund program

13. 2013 Legislature “pay-fors”
The 6.3% sales tax was due to drop to 5.7% on July
1. Instead, it became 6.15% on July 1.
In tax year 2013, all other itemized deductions
(including mortgage interest and property taxes)
will be reduced by 30%. Charitable exempt.
By tax year 2017 and thereafter, itemized
deductions are reduced by 50%.

14. States without income tax
without income tax
• States without income tax usually have abundant
natural resources or tourism
• States without income tax shift the burden to sales
and property taxes
• States without income tax shift the burden to the
poor
• States without income tax usually have many “nickel
and dime” taxes

15. Texas
•Most job growth from the oil and gas industry
•High property taxes
•A high tax state for capital intensive businesses (ag,
manufacturing, technology)
•Percentage of Population Graduated from High
School: 50th
•Average SAT Combined Scores: 47th
•Percent Living Below Federal Poverty Level: 8th
•Median Net Worth of Households: 44th
•Tied with Mississippi for highest % of low wage
jobs

16. South Dakota
Large concentration of financial
workers
No cap on credit card interest rates
Rural areas are suffering

17. Alaska
2nd largest oil producing state
Collects over $7 billion a year in severance taxes.
52.6 percent of state and local revenue comes from
taxes that includes severance taxes, stock transfer
taxes, estate taxes, and fees for hunting, fishing, and
driver’s licenses.
Over 25 percent of the workforce works for
government.
Half the land is owned by government

18. Wyoming
Produces 40% of U.S. coal each
year
25% of workforce is government
About half the land is owned by
government

19. Florida
• Economy based on tourism and trade
• Top travel destination in the world
• 60% of the state budget based on sales
tax
• Property taxes among the highest in the
nation

20. Washington State
Relies on sales tax more than any other state
Major employers include Boeing and Microsoft
Many additional taxes and fees
Cigarette tax of $30.25 per carton
Tax on 8,000 identified hazardous substances
Litter tax on products which contribute to litter
(groceries)
Tire fee

21. Nevada
Relies heavily on sales tax paid by
tourists
Consistently among the highest
unemployment rates in the country
State hurt the most by the Recession

22. Taking back Kansas
States without an income
tax often have an
excessive tax burden on
those with less income

27. Taking back Kansas
To date, there is little or no
hard evidence the Kansas
economy has grown due to
the income tax cuts….even
the Governor’s own
benchmarks!!

28. Indicators of the Kansas Economy
“These economic metrics will allow us to
determine the state’s relative economic
position as it relates to the six-state region
and the nation, and to monitor in a timely
manner if our policies and initiatives are
having the desired economic effect.”
- Governor Sam Brownback
Included in the analysis are Arkansas, Colorado, Iowa,
Missouri, Nebraska, and Oklahoma

29. “Indicators of the Kansas Economy”
Kansas trails in growth behind other states in
the region in the following categories:
Employment
Population
Gross domestic product
Personal income
Private industry wage level
Private establishment (business)

30. “Indicators of the Kansas Economy”
Private Establishment growth (one year)
(Total private establishments, all employee sizes)
Kansas 0.7%
6-State Region 2.6%
U.S. 2.2%

31. “Indicators of the Kansas Economy”
Population growth (one year)
Kansas 0.3%
6-State Region 0.7%
U.S. 0.7%

32. “Indicators of the Kansas Economy”
GDP (Gross Domestic Product) growth (one
year)
Kansas 3.1%
6-State Region 3.6%
U.S. 4.1%

33. “Indicators of the Kansas Economy”
Personal Income growth (one year)
Kansas 2.4%
6-State Region 2.7%
U.S. 2.1%

34. “Indicators of the Kansas Economy”
Per Capita Personal Income growth (one year)
Kansas 2.2%
6-State Region 3.6%
U.S. 3.4%

35. “Indicators of the Kansas Economy”
Building Permits (one year)
(New privately owned housing units
authorized)
Kansas 22.5%
6-State Region 11.5%
U.S. 15.9%

36. “Indicators of the Kansas Economy”
Nonfarm Employment growth (one year)
Kansas 0.7%
6-State Region 1.3%
U.S. 1.7%

37. “Indicators of the Kansas Economy”
Private Sector Employment growth (one year)
Kansas 0.9%
6-State Region 1.5%
U.S. 2.1%

38. “Indicators of the Kansas Economy”
Private Industry Wage Levels growth (one
year)
Kansas 0.1%
6-State Region 0.3%
U.S. 0.6%

39. Taking back Kansas
The impact on the Kansas budget
When you cut taxes, you
have less money

40. $6,500
$6,200
$5,900
$5,600
$5,300
$5,000
$4,700
$4,400
$4,100
$3,800
$3,500
$3,200
FY
2000
FY
2001
FY
2002
FY
2003
FY
2004
FY
2005
FY
2006
FY
2007
FY
2008
FY
2009
FY
2010
FY
2011
FY
2012
FY
2013
FY
2014
Gov.
FY
2015
Gov.
Dolars in Milions
Receipts
Expenditures
State General Fund
Receipts and Expenditures
Governor’s
Recommendation

41. The Budget
April revenue was $92 million below
estimates
May revenue was $217 million below
estimates
June revenue was $28 million below
estimates
July revenue was $1.6 million above
estimates

42. The budget
Actual FY 2013 SGF receipts - $6.34
billion
Actual FY 2014 SGF receipts - $5.65
billion
A difference of $688 million
A drop of 10.8% in one year!

43. The budget
Lawmakers approved a budget for fiscal year
2015* that spends $326 million more than
the state officially expects to take in.
“The FY 2016 budget is in very big trouble no
matter what happens in FY 2015.”
- Duane Goossen
Former Budget Director

44. Tax Foundation
It rewards certain business structures while
punishing others. There is no sound economic
justification for treating these two types of
business activity so dramatically differently.”
“Further, while tax reductions can have positive
economic benefits, they will cost revenue and will
ultimately have to be paid for either by cutting
spending or increasing taxes elsewhere.”
- May, 2012

45. Forbes – June 1012
“Kansas slashed the tax rate for the better off and
exempted huge chunks of business, farm and self-employment
income from its individual income tax,
while increasing the burden on some of the state’s
poorest residents by eliminating a rebate they now
get to offset the state’s sales tax on food.”
“When the food sales tax rebate disappears next
year, Kansas will join Alabama and Mississippi as
the only states that levy a tax on food and don’t in
some way compensate lower income residents for
the strain on their budgets.”

46. Moody’s downgrades Kansas bonds
As the state income tax is removed,
Kansas’ revenue structure will become more
dependent on excise and severance taxes
and the full economic impact is unclear.
The state’s ability to maintain structural
balance long-term may also depend to an
increasing degree on its capacity for
spending cuts.
- April 30, 2014

47. Taking back Kansas
Final thoughts

49. Kansas Economic Progress Council
Thank you!