Impact of tax cuts on Kansas offers a warning to Oklahoma

March 27th, 2014
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As Oklahoma considers tax cuts similar to those that took effect in Kansas last year, a new report shows that following in Kansas’s footsteps is a bad idea. 

Kansas’s massive tax cuts have failed to improve the state’s economic performance, as they have deepened the damage done by the recession to schools, colleges and universities, and other key services according to the new report from the nonpartisan, Washington, DC-based Center on Budget and Policy Priorities. 

“Those pushing more tax cuts in Oklahoma, even before we restore the large cuts to education funding, claim these tax cuts would boost the economy,” said Gene Perry, Policy Director of Oklahoma Policy Institute. “We only have to look across the Kansas border to see that isn’t so.”

The report examines Kansas’s performance on a number of measures in the first year after the tax cuts there took effect.  It finds job growth in Kansas has been slower than the national average since the tax cuts took effect and its labor force has actually shrunk during that period. The number of new businesses in Kansas grew more slowly last year than in the year before the tax cuts took effect.

In 2012, Kansas reduced its top income tax rate from 6.45 percent to 4.9 percent. Kansas also exempted some business owners’ income from taxation. At the same time, the state eliminated a number of tax credits, including ones that help low-income families, such as a rebate for sales taxes paid on food. In 2013, Kansas scheduled deeper income tax cuts based on a revenue trigger, while canceling a scheduled sales tax decrease.

An analysis shows that Oklahoma’s proposed reduction of the top income tax rate to 5 percent would do nothing for 41 percent of Oklahoma households and provide an average of just $29 to a middle-income families, even as it reduces funding for services by $135 million.

“Recent tax debates in Kansas and Oklahoma have been obsessed with reducing the top income tax rate, even though that does little to nothing for most families,” said Perry. “But we all pay for them through increases in other taxes and fees and lost funding for important services.”

The report shows that Kansas’s huge tax cuts have left the state’s k-12 schools, colleges and universities, courts, local libraries, health departments, and other key services stuck in the recession and continuing to decline. School districts across the state have had to lay off teachers and counselors and cut programs for students since the recession hit. Kansas Governor Brownback’s budget proposal for next year would further shrink school funding, leaving per-student spending at 17 percent less than before the recession.

School funding in Oklahoma has declined even more over the same period. Since 2008, Oklahoma’s school funding formula per pupil is down nearly 23 percent after inflation, the largest decrease among all 50 states.

“The long run effects of the Kansas tax cuts are extremely troubling,” said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities and co-author of the report.  “High-quality schools and colleges are a crucial building block of economic growth.  They determine the quality of the state’s future workforce and shape the minds of future leaders and entrepreneurs.  By shortchanging these priorities, Kansas – and any state that follows in its footsteps – is setting itself up for trouble down the road.”

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The Center on Budget and Policy Priorities’ full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=4110