On January 28th, OK Policy’s annual State Budget Summit will include a keynote presentation on “The Failed Kansas Experiment.” In 2012, Kansas enacted major income tax cuts and totally eliminated the personal income tax for owners of certain businesses. Kansas Governor Sam Brownback boasted that these tax cuts would be “a shot of adrenaline into the heart of the Kansas economy,” creating tens of thousands of new jobs. The jobs didn’t materialize, and Kansas is making deep cuts to schools, highways, children’s health care, and many other services even while hiking the sales tax and several other taxes to cover a gaping budget hole.
Our northern neighbor’s economic and budget problems have been well publicized by national media. Governor Brownback’s high-flying claims followed by an equally dramatic crash no doubt helped to attract attention to his state. Oklahoma’s budget problems have not received as much attention nationally, but over the past decade, we’ve conducted an experiment in tax cuts and budget shortfalls that goes even deeper than Kansas.
A few things to keep in mind when comparing states: By population, Kansas is about 3/4ths the size of Oklahoma. The most recent Census numbers put Kansas’ population at about 2.9 million, compared to 3.9 million people in Oklahoma. On the other hand, Kansas is comparatively wealthier. The 2009-2013 median income in Kansas was $51,332, compared to $45,339 in Oklahoma. Kansas’ poverty rate over that same period was 13.7 percent, compared to 16.9 percent in Oklahoma. Both states have large agricultural and aerospace sectors. However, the Kansas economy is not nearly so dominated by oil and gas extraction as Oklahoma. Kansas’ largest industry by GDP is hospitals and nursing and residential care facilities.
This chart shows how Oklahoma’s current personal income tax brackets compare to Kansas, both before and after Kansas’s 2012 tax cuts. While Oklahomans are paying a higher rate at most income levels, the biggest difference is not the top rate, but the levels at which tax brackets kick in. After the standard deduction and personal exemptions, a Kansas family of four only pays the 4.8 percent top rate on income of $48,000 or higher. Oklahoma families of that size reach the 5.0 percent top rate at $28,100 in income.
Even though Oklahomans tend to pay higher marginal rates, they still pay less income taxes and less overall state taxes on average than residents of Kansas. That was true both before and after tax cuts, as illustrated by the charts below.
In 2004, the amount of taxes paid by Oklahomans and Kansans were very similar, though Oklahoma was still slightly lower ($2,655 per person in Kansas and $2,505 in Oklahoma). Then through the mid- to late-2000s, Oklahoma’s per capita income taxes and total taxes dropped dramatically, in large part due to a series of income tax cuts now costing $1.022 billion per year. Kansas partially “caught up” with their tax decline under Governor Brownback as personal income tax revenues plummeted 24.3 percent in FY 2014. But over the entire period, Oklahoma’s per capita personal income tax collections have dropped half again as much as Kansas. For total state taxes, Kansas collected $2,525 per person in 2014, which is still higher than what Oklahoma collected back in 2004 and well over the $2,347 per person Oklahoma collected in 2014.
Oklahoma’s greater drop in tax collections has been matched by a drop in spending on state services. As an example, here’s per pupil spending in Oklahoma and Kansas, adjusted for inflation.
The most recent data from the U.S. Census is for fiscal year 2013, so this does not yet cover the full aftermath of Kansas’ tax cuts. However, we can see that even before tax cuts Oklahoma spent significantly less on public schools per student, and we’ve made larger cuts over the past decade. In 2014 dollars, per-pupil spending dropped from $8,486 in fiscal year 2004 to $7,821 in FY 2013, a 7.8 percent decrease. In Kansas, per pupil spending went from $10,330 in FY 2004 to $10,019 in FY 2013, a 3.0 percent decrease.
“Over the past decade, Oklahoma has cut an even larger percentage from a lower starting point of both revenues and spending. We’ve cut more when we can afford it less.”
Tax cuts aren’t the only cause behind revenue declines — the state of the national economy and each state’s major industries plays a huge role. Nevertheless, it’s clear that income tax cuts have not lived up to promises that they would boost revenues in either Kansas or Oklahoma. And in both states, we’re now seeing budget cuts that are very bad news for the economy and bad news for citizens’ health, safety, and financial well-being.