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Kansas economy falling behind by staying in the same place

economic growth

The Red Queen Hypothesis is a theory in evolutionary biology that species must continuously evolve to compete in their environments and not go extinct. This philosophy can also be applied to the economies of states and countries: those that do not reform to stay competitive will lose residents and opportunities to other states. Recently released private sector job numbers from the Bureau of Labor Statistics (BLS) show that Kansas is steadily falling behind other states in evolving their economies.

On March 10th of this year, the BLS released job numbers from January 2023 as well as updated job numbers going back to 2013. It’s in this update that the numbers show Kansas fully regained its pre-pandemic job levels in July 2022 alongside Nebraska, Maine, Oklahoma, New Hampshire, and Virginia.* But this was after 23 other states across the country had already done the same. As of January 2023, a different combination of 23 states have a higher percentage of jobs compared to pre-pandemic levels than Kansas does at 2.5%. Utah, for instance, is 9.5% above. North Carolina is at 7.0% and Colorado is at 3.1%.

Similarly, Kansas’s monthly growth rate of 0.4% in January 2023 was beaten by 24 other states, with many other states right behind at 0.3%.

This isn’t a new trend either. The Bureau of Economic Analysis (BEA) also measures private-sector job growth, and in their data, Kansas ranked 44th for private-sector job growth nationwide between 1998 and 2021 at 13.2%.

In January, Kansas’s unemployment rate remained at 2.9% – the same it has been since November 2022. The labor force participation rate stayed at 66.3% as well, which has been constant since September 2022. Consistency may matter in some cases, and at least we’re not getting worse, but our failure to adapt means we’re effectively stuck with mediocre economic performance and means falling behind states that are improving.

The growth in other states doesn’t just come from nowhere: it’s a result of public policy aimed towards attracting business and keeping living affordable. For instance, Utah’s friendly, flat 4.85% income tax as well as programs such as regulatory sandboxes and occupational licensing reform have drawn in a net migration of 186,690 residents since 2000.

What’s more, 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.

Colorado’s Taxpayer’s Bill of Rights creates limits on how much the government taxes and spends, so excess taxation is returned to residents in the form of checks, such as $160 for filers earning up to $48,000 – meaning that mountains have less to do with in-migration than we’re often lead to believe.A low, flat tax rate of 4.40% also helps attract businesses.

Many of the reform opportunities that have boosted other states, such as a flat tax, a retirement tax exemption, and the elimination of the food sales tax, are going forward in Kansas. But whether Kansans will keep the benefits of tax reform comes down to if spending can be controlled so a tax cut doesn’t turn into a tax hike elsewhere in the budget.

* As recently as January 2023, KPI reported that Kansas had not fully recovered its pre-pandemic private-sector jobs. This was based on the most available BLS data from that time.