Kansas’s spending season is on the horizon, and the state’s tax revenue will play a big part in determining how much taxpayer money is spent by Topeka. The latest data continue the streak of breaking revenue estimates, but shouldn’t be interpreted as a reason for big spending.
In October 2022, the state of Kansas took in $738.8 million in tax collections, which was 11.0% higher than estimated. Income and sales tax collections were 15.5% and 6.5% higher than their respective estimates. For the fiscal year thus far, total tax collections are 11.6% higher than estimates and 6.1% higher than the total by last October.
Yet, these expectation-exceeding revenues aren’t a sign to proclaim a “booming” economy. Whereas income tax collections can be artificially boosted by high inflation while real purchasing power decreases, sales taxes are a closer read of families’ purchasing habits in the economy. FY 2023’s income tax collections thus far are 10.3% higher than what they were last year, but the sales tax collections are only 0.2% higher – and that’s with inflation affecting prices and thus tax collections. This could mean reduced consumer spending, which in turn indicates a slowing economy on a path toward a recession.
The continually high collections raise a red flag because of the historical inaccuracy of the revenue estimates, particularly those of the Consensus Revenue Estimating Group. At the last estimate before the end of a fiscal year (April before the end of the FY at the end of June), predictions for income tax collections were off by 4.7% on average over the last 18 years – that’s a discrepancy of about $128 million each year. Overestimations in the mid-2010s caused inaccurate revenue predictions that bungled tax reform attempts.
Taxing is based on spending: how much a state chooses to spend determines how much it taxes. And as KPI’s Green Book shows, states that spend less, tax less, ad grow more.
If Kansas’s All Funds Budget had been limited by the rate of population growth and inflation (which is a commonly used metric to represent the average taxpayer’s ability to pay taxes) since FY 2005, the FY 2021 allocation would have been $14.9 billion, from 10.6 billion in FY 2005. Instead, the actual budget was $21.0 billion – 41% higher than if it had been limited by the rate of population growth and inflation. The cumulative excess spending over that time period means higher income and sales taxes, tuition at state colleges and universities, and other fees to make up the difference.
Spending more this coming year because of high revenues would further expand the state’s budget and the taxes that come with it. Not to mention that with the shaky reliability of the revenue estimates due to reporting errors, economic conditions, and inflation, Kansas doesn’t need more spending. Taxpayers are already paying an additional monthly cost of $735 from inflation, let alone higher taxes too. KPI’s upcoming Responsible Kansas Budget for FY 2024, as an earlier version did this year as well, will cover how to keep the burden of the government budget low on Kansas families.