Memo: Income tax cuts factored into Kansas’ revenue shortfall

06/10/2014 1:30 PM

08/08/2014 10:24 AM

Kansas officials underestimated the full impact of income tax cuts, according to the state’s research department, which released a memo Tuesday saying that the income tax cuts contributed to the state missing revenue estimates by more than $300 million.

Gov. Sam Brownback and the Kansas Department of Revenue have repeatedly blamed the $310 million shortfall primarily on a federal capital gains phenomenon.

Last year, the state surpassed revenue estimates by more than $69 million, partly because investors sold stock at a higher rate at the end of 2012, expecting that the federal capital gains tax would increase the next year.

Inflated revenue for the prior tax year resulted in a dropoff nationwide this year, according to the Kansas Legislative Research Department, which is nonpartisan.

But the state’s new tax laws have also contributed, Legislative Research says.

“It appears that some of the fiscal notes associated with various income tax law changes enacted in 2012 and 2013 were understated,” the memo states.

Legislative Research said additional study would be needed. It could not specify now what percentage of the shortfall was caused by income tax cuts.

The Kansas Department of Revenue stood by its earlier statements, which placed the blame squarely on the capital gains phenomenon.

“Our analysis shows it was the primary cause,” Jeannine Koranda, the department’s spokeswoman, said in an e-mail.

“Any other assessment at this point is speculative and will be revisited by the Consensus Revenue Estimating group in November,” she said.

Senate Minority Leader Anthony Hensley, D-Topeka, said in a statement that initial attempts by the administration to blame the shortfalls on President Obama and on capital gains were an attempt to deceive Kansans.

“It’s time for the Brownback administration to take responsibility for their failed experiment and give Kansans the full report on the true causes of this self-imposed fiscal disaster,” Hensley said.

Mark Dugan, Brownback’s campaign manager, said the tax cuts should not be judged solely by their impact on the state’s revenue, but on the impact to the state’s economy as well.

“Our policies are working,” Dugan said in a phone call, pointing to the state’s unemployment rate, which is below 5 percent. “Kansans have more money in their pockets today because of tax cuts implemented by Gov. Brownback and the Legislature. We think Kansans can spend money more appropriately than the government can.”

The state has lagged the nation in economic growth, according to the Federal Reserve Bank in Philadelphia. Between April 2013 and April 2014, the nation’s economy grew by 3 percent, while Kansas’ economy grew by 2.4 percent.

Related link: Kansas Legislative Research Department’s memo dated June 9 (PDF)

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