Declining economic indicators show need for tax relief in Kansas

Declining economic indicators show need for tax relief in Kansas

This year’s underperformance in job growth and overall economic activity is now significantly impacting state revenue, according to the November tax collection report. It’s another sign that Kansas needs tax relief to end its five decades of stagnation.

Compared to November 2021, the income tax collected last month was only 0.9% higher. With 12-month inflation in October 2022 being 7.4%, the fact that the growth in income tax is so low means a “hidden deficit” in which real value has been lost but is obfuscated by inflation.  The 6.8% increase in sales and use tax is also less than the inflation rate and indicates a decline in economic activity.

October 2022 was also the fourth straight month that Kansas lost employment according to the Bureau of Labor Statistics’ Current Population Survey (CPS). That equates to 13,376 jobs lost compared to June, equating to 0.9% of the total employment.   The CPS gathers information from people about their employment status, whereas the Current Employment Statistics (CES) gets its information from employers.  The CPS includes self-employed workers, but the CES does not.

As of October, the CES shows Kansas is still 6,500 private sector jobs below its pre-pandemic levels while 27 other states have already exceeded theirs.

Kansas had negative real (inflation-adjusted) GDP growth in the first quarter (most recently reported) of 2022 has only grown at about half the national average over the last three years.

Uncompetitive tax rates stymie economic growth

The higher a government’s marginal tax rate, the more likely people will either reduce their economic footprint or move to avoid it. Kansas’s highest marginal personal income tax rate is 5.70%, ranking 24th in the country. Last year, Missouri brought its top rate down from 5.2 to 4.95%, Iowa enacted a plan to gradually reduce its bracketed system with a top rate of 6.0% down to a flat tax of 3.9%, and Colorado recently went down to a flat rate of 4.40%.

Our annual 50-state comparison shows that states with lower tax burdens have superior economic growth.  Between 1998 and 2020, the states without an income tax had a 45% increase in private sector jobs, while the average for other states was just 18%.  The no-income-tax states also outperformed the others on GDP growth between 1998 and 2021 (199% vs 147%).

The writing is on the wall: declining economic indicators and surrounding states upping their competitiveness means its time for tax relief in Kansas, too.