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Thursday, July 10, 2014

Sky won’t fall due to tax cut


The claim by Senate President Steve Morris, R-Hugoton, that Kansas’ tax reform will create a $2.7 billion deficit is based on a hypothetical scenario that every legislator understands cannot occur, as a balanced budget is required by state law every year (July 19 Opinion). The deficit prediction comes from a standard static analysis that government uses and that by design ignores the realities of balanced-budget requirements and the additional state and local tax revenue that will be generated from increased economic activity.

A dynamic analysis conducted by the Kansas Policy Institute and the Beacon Hill Institute at Suffolk University in Boston captures that extra revenue and shows that only a one-time spending reduction of about 8.5 percent in fiscal year 2014 is necessary to maintain balanced budgets and healthy ending balances. Thereafter, spending can generally increase at the same pace as revenue, which is estimated to be about 4 percent.

Even after the one-time adjustment, Kansas still would be spending more per resident than many other states. The sky won’t fall with tax reform – just your tax bill.

The KPI/Beacon Hill study shows that the tax cut will create at least 33,000 new jobs and increase disposable income by at least $1.6 billion through fiscal year 2018.

Morris said many more jobs are needed to make up for income-tax relief, but the calculation he cited is from a group that lobbies Topeka to spend more of your money to fund an ever-expanding state government.

Our dynamic analysis also shows that increased economic activity prompted by income-tax reform will generate at least $323 million in new local sales- and property-tax revenue. This growth invalidates any speculation that local tax rates would have to increase.

The ongoing battle over tax reform is driven not by facts but by philosophical differences – economic freedom and jobs, or the continued growth of government.

DAVE TRABERT

President

Kansas Policy Institute

Wichita

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