Just a few weeks ago, the Kansas Legislature chose to pass a retroactive, record-breaking tax increase to pay for a spending habit that remains out of control. As a result, individuals and businesses will be on the hook for an additional $1.2 billion in taxes over the next two years alone.
Supporters say the tax hike is the only way to deal with the state’s chronic budget deficits. But while raising taxes may provide a short-term boost in revenue, it does nothing to address the root cause of the deficits – soaring government spending.
When you or I face a loss of income, we compensate by cutting back on expenditures. But when Kansas legislators faced declining revenues, they kept on ratcheting up spending as if nothing had changed. Total state spending continued to increase almost every year since the tax cuts were enacted, predictably leading to massive budget deficits.
There’s no reason to think legislators have learned their lesson. Just three months ago, the legislature voted to expand Kansas’ Medicaid program to cover an additional 100,000 adults, a move that would have cost the state an estimated $1.1 billion over 10 years. That costly mistake was narrowly averted thanks to Gov. Brownback’s veto.
If the vote for Medicaid expansion is any indication, expenditures will not stop climbing anytime soon. Spending is already expected to increase $275 million next year and another $42 million in fiscal year 2019.
Even with $1.2 billion in new revenue, the forecast budgets for 2018 and 2019 won’t be balanced without resorting to the legislature’s usual gimmicks. Barring deep structural reforms, by 2020 revenue shortfalls will again force lawmakers to either cut spending or raise taxes yet again.
Legislators called their tax hike fiscally responsible, but it simply punts the problem a few years down the road.
Advocates for bigger government say the legislature’s action puts an end to the tax-cut experiment in Kansas that failed to grow the economy as promised. But the facts show that the 2012 tax cuts helped create thousands of new jobs in the private sector.
The year the tax cuts went into effect, Kansas received over 15,000 new small business filings – a state record. That record was broken again in 2013, when Kansas also received an “A” for its small business climate from the Kaufman Foundation. The target sector of the tax cuts – pass-through entities such as LLCs – have been responsible for 54,424 new jobs since 2013, or 98 percent of private sector job growth overall.
Reversing the tax cuts jeopardizes these jobs while leaving Kansans with an even smaller slice of their own paychecks. The marginal rate on all income brackets will increase by 14 percent to 24 percent by 2018.
Adding insult to injury, this year’s increase in the marginal tax rates will be retroactive – meaning workers will owe additional taxes on all the income they’ve earned since January 1, 2017.
It didn’t have to be this way. We’ve seen tax cuts in work in states like Wisconsin, which slashed nearly $4.8 billion in taxes after Gov. Scott Walker took office in 2011. Unemployment dropped, incomes went up, and tax revenues began to rise. This year, a revenue surplus will allow Wisconsin to eliminate the state portion of the property tax and boost funding for schools by almost $650 million.
A key difference between us and them is that Wisconsin showed a willingness to rein in spending when revenue was tight. Eventually, our own legislators must do the same. Until then, you and I will be left footing the bill.
Jeff Glendening is the Kansas state director of Americans for Prosperity.