Drop in ALEC ranking due to spending, not tax cuts

In the recently released ninth-annual “Rich States, Poor States” report, many states saw their rankings move considerably. Among them was Kansas, which fell from its 2015 economic outlook ranking of 18th to 27th (“Even ALEC is souring on Kansas’ economic outlook,” April 14 Now Consider This).

However, Kansas’ ranking decline stems from tax hikes and insufficient spending control, not the package of tax relief implemented in 2012.

The American Legislative Exchange Council is a 501(c)(3), nonpartisan state legislator organization dedicated to the principles of limited government, free markets and federalism. Its annual “Rich States, Poor States” report provides a comparative state analysis of what economic policies are working – and which ones are not.

Kansas’ multiyear trend reflects a chain of policy decisions. Kansas’ initial pro-growth tax relief led to improved standing, but while the reforms enacted in 2012 eased tax burdens on Kansans, many of the spending offsets were never fully adopted. As a result, Kansas spending outpaced inflation.

Later decisions to increase taxes influenced Kansas negatively in numerous ranking variables. Therefore, the overall ranking decline in 2016 was the result of new, economically harmful policies, not the tax relief passed in 2012.

The report uses 15 equally weighted economic variables to rank how a state is governed, measuring taxes, regulation and labor policies – all of which impact future economic competitiveness and growth. This year, Kansas fell precipitously under the “Recently Legislated Tax Changes” variable, from seventh to 47th, largely because of recent decisions to increase various taxes.

Kansas’ decline was also influenced by other states’ actions. One observable trend is that if a state isn’t actively working to implement reforms friendly to commerce, it is liable to be left behind.

Taxes and spending issues are inseparable; reforms to one must keep pace with the other. This position has been consistently reflected for many years in ALEC research. Kansas moved the needle significantly on the taxation side of the fiscal coin with the 2012 tax cuts, but did not adequately do so on the spending side.

By no means should a decline in the ranking be interpreted as a criticism of the pro-growth tax relief in Kansas, but rather as a criticism of spending growth and new tax increases.

This story was originally published April 20, 2016 at 7:02 PM with the headline "Drop in ALEC ranking due to spending, not tax cuts."