In August, Kansas’s job numbers plummeted. 2,700 private-sector jobs were lost, wiping out the last three months of meager growth. Another 1,400 government jobs disappeared too. Kansas’s job growth has three options: sluggish growth, standstill, or plummets that wipe out what little progress there was before. This is a result of Kansas not being competitive economically with other states and not promoting job growth within its own borders through tax reform.
The reason why there haven’t been tax cuts in recent years is largely political. Governor Sam Brownback’s tax cuts in 2012 are often used as a boogeyman to deter any consideration of future tax cuts. Governor Kelly is quick to call cuts “irresponsible,” “reckless,” and “back to Brownback,” yet happily signed away at least $1.27 billion to Panasonic. Her megasubsidy has massive transparency and effectiveness issues. $1.4 billion in tax relief last year fell short by a few votes due to petty politics in the Senate failing to overturn Governor Kelly’s veto.
Brownback’s tax cuts failed, but it was the exception and not symptomatic of the idea as a whole. Since 2012, 25 states across the country have enacted income tax reductions yet haven’t seen the same problems that Kansas did. The reason why Kansas failed was simple: the tax reform well exceeded the original amount planned. The nail in the coffin was that spending increased despite the cut revenue. There wasn’t a comprehensive plan to balance the budget with the size of the tax reform passed or with room for economic downturns.
Since 2021, 25 states have cut individual income tax rates, 13 states have cut corporate income tax rates, and 2 have cut sales tax rates. Each of Kansas’s neighbors has had some sort of reform. Missouri started at a top marginal rate of 5.40% and has dropped down to 4.95%, with plans to hit 4.50% in the future. Nebraska was the only state in the Midwest to adopt any sort of corporate income tax rate reductions. It’s easy to see why the poor job numbers are coming—or continuing as they have for decades–through when Kansas is an island in a sea of tax reform across the country.
Why tax reform?
It’s easy to “lose the forest through the trees” when it comes to tax reform: how does this policy change the trajectory of an economy?
Theoretically, it’s simple. Taxes take money out of the wallets of Kansas families. If they actually had that money, they could have spent as they wished, purchasing more in their community, thus causing money to circulate amongst individuals and businesses instead of in the hands of the government. Similarly, taxes act as a business cost. The less tax, the more money that businesses have to spend on their own expenses. Of course, that doesn’t mean some taxes are a practical necessity. But, it does mean governments should tax at the lowest possible rate.
Tax reform has proven effective worldwide in producing numerous economic miracles. After WWII, the West German government sustained a lengthy period of growth through pro-market reforms like eliminating price controls, currency reform, and slashing tax rates on the middle class. At that time, people were facing an 85% or 95% above a certain level, which is absurd in an American context, but an example of how unchecked government overreach can stifle growth.
Singapore, a country the size of most American metropolitan areas, became an economic powerhouse by marketing itself to businesses. Low taxes, an easy-to-manage regulatory burden that allows people to open a business in less than three hours, and transparent government were at the core of their growth.
Domestically, the case is true, too. North Carolina is the sixth-highest destination for domestic migration and has a booming economy whose private-sector job levels are 6.0% higher than in January 2020. That largely stems from a decade of tax reform, starting with reductions of the corporate income tax rate with a phase-out planned by 2029 and then a flattening of the income tax to 5.8% in 2014 and later 4.99%. These bipartisan reforms have resulted in an influx of venture capital investment, job growth, and prosperity. A low cost of living and affordable housing has helped in the move, but free-market reforms like changing exclusionary zoning laws and reducing prohibitive regulation are key to keeping homes built at an affordable selling price.
Kansas is a much different place than these examples though with a domestic economy and politics wildly different too. But the same economic principles that worked in these countries and in other states need to come to Kansas if there is to be growth.
