Kansas Tax Plan Reversal Offers Lessons for National Debate

Americans for Tax Reform President Grover Norquist. (Image via flickr)
June 23, 2017 at 11:38 am ET

Backlash in Kansas over major tax cuts enacted by Gov. Sam Brownback and his fellow Republicans in the legislature offers lessons for federal tax-writers who are coming up with a tax reform bill of their own, experts say.

But opinions vary widely over what lessons Congress and the Trump administration should heed from the five-year-plus saga.

Legislation that Brownback championed early in his governorship implemented major tax cuts. Yet the ensuing years sunk the agenda’s popularity, due to an array of underfunded public programs.

After the 2016 elections, Democrats in the legislature formed a loose coalition of moderate Republicans opposed to Brownback’s reforms. Earlier this month, tax cuts were peeled back when the state’s legislature overrode his veto of legislation that changed the tax plan to bring in more revenue.

Brownback, a senator from Kansas for 14 years before winning the governorship, defended his tax program right up until its legislative override. Before vetoing the tax increase, Brownback said that the move would undo his administration’s efforts to achieve “pro-growth orientation.”

“It will substantially damage job creation and leave our citizens poorer in the future,” Brownback said in his June 6 statement.

There are differences in the nature of tax policy at the state and federal levels, but Kansas’s low-tax experiment was cited by prominent conservatives like Americans for Tax Reform President Grover Norquist for years. In a 2015 interview with Reason TV, he called the Sunflower State “the model” for how governments should address taxes in the future because of its severe income and business tax cuts, which he said stimulated economic growth in the state.

In a Tuesday interview with Morning Consult, Norquist stood by his comments on Kansas, and instead said that the state’s fiscal woes were the result of decades of poor spending policies. He said the failure to include spending moratoria alongside the tax cuts was at the root of the problem currently confronting the state.

“This is a fight, in Kansas, over spending,” he said. “Certain people want to spend more money, and they didn’t like the idea that as Kansas got richer, resources would go to more people.”

Norquist also noted that Kansas’s agriculture and energy-focused economy was hit by a dive in commodity prices that also affected revenue in Topeka.

That view of the situation was shared by Rep. Ron Estes (R-Kan.), who was the state treasurer before winning a special election to Congress this year.

“I think the biggest thing that came through that is making sure that spending is in line with tax revenue,” Estes said in a Wednesday interview. “Some of the things that got lumped in with tax policy was really just a general economic slowdown as well.”

However, the spending issue is just part of the critique of how Kansas relates to federal tax policy. John Buhl, a spokesman for the center-right Tax Foundation, highlighted the Kansas reform’s 0-percent tax rate for pass-through businesses as a main area of concern.

Zeroing the rate changed the tax law structure in a way that “basically created a tax avoidance strategy” because high earners could report their income using the pass-through rate. That withered Topeka’s tax base and led to some of the budget shortfall policymakers encountered in recent years, he said.

Harry Stein, the director of fiscal policy at the left-leaning Center for American Progress, said in a Monday interview that the low rate on pass-throughs in the federal plans resembles the Kansas business tax exemption — which “unsurprisingly leads to an enormous amount of gaming.”

Norquist took issue with this argument, though, and suggested that the higher number of pass-throughs in Kansas is attributable to business growth instead of gaming the system. There’s “just more growth in that zone,” he said.

Norquist, and Buhl both pointed to North Carolina as a stronger example of how major tax cuts can be effective. Under the administration of former Gov. Pat McCrory (R), the state implemented a tax reform policy in which automatic cuts to income tax were tied to the state’s fiscal stability. The state’s current, flat income tax rate is around 5.5 percent, down from a maximum of 8.25 percent on income over $120,000 from 2001-2006.

“They’re on track to get rid of their income tax,” Norquist said, referring to North Carolina. “We don’t need Kansas anymore, because North Carolina … has just taken their corporate rate down to 3 percent — their individual rates down dramatically.”

 

Correction: A previous version of this story misspelled John Buhl’s last name in the penultimate paragraph.

Do NOT follow this link or you will be banned from the site!