Raising taxes during a down economy is a bad idea. But as a study released this week found, cutting government spending may be even worse.
John Wong, interim director of the Hugo Wall School of Urban and Public Affairs at Wichita State University, analyzed the economic impact of either cutting state spending by $350 million or not cutting that spending and raising the statewide sales-tax rate from 5.3 to 6.3 percent, as Gov. Mark Parkinson has proposed.
Wong determined that the spending cuts could result in a loss of nearly 5,200 jobs across the state, while the sales-tax increase could lead to about 3,200 lost jobs. Thus, the sales-tax increase could result in about 2,000 fewer job losses.
That may seem counterintuitive, but Wong offered three reasons why a sales-tax increase would have a less-negative impact:
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* A higher percentage of government spending than private spending initially stays within the state's economy, going either to employees in the form of salaries or to local businesses for the purchase of goods and services.
* The negative effects of a sales-tax increase are spread throughout the state, both geographically and across all residents, while the spending cuts severely affect a smaller number of state residents and businesses, causing greater economic harm.
* A portion of the sales-tax increase would be paid by tourists and other visitors to the state.
Wong's analysis focused on the economic impact of either option, but there also are social and policy considerations.
The sales-tax increase (estimated to cost an average Kansas family $266 annually) would place more burden on struggling families. It also would move Kansas from having the 23rd-highest combined state and local sales-tax rate in the country to the ninth-highest (assuming other states don't also raise their sales taxes).
On the other hand, cutting $350 million more from the state budget could do real harm to crucial programs and the people who depend on them. And Wong told The Eagle editorial board that the value of the lost services to lower-income families likely would be greater than the additional sales tax they would pay.
The fact that a sales-tax increase could be better for the overall economy than spending cuts does not mean the state should recklessly raise taxes. The state needs to control spending and seek a proper balance between providing needed services and maintaining a competitive tax and business climate. It also should reconsider eliminating some sales-tax exemptions and look at creative ways to help close its budget gap, such as by selling some state assets.
But some anti-tax groups act as if there is no economic cost to cutting government spending, and any money taxed is a complete loss to the economy — as if the government puts those tax dollars in a pile and burns them.
Conversely, some supporters of education and social services are too dismissive of the impact of tax increases, downplaying the sales-tax proposal as merely an extra penny on the dollar.
As Wong's study makes clear, both are bad options. The question is: Which is the least bad?