••• Tax & Spending •••

Kansas’s short-run GDP growth versus long-run stagnation

Farm Bill

Last week, KPI ran an op-ed in the Topeka Capital-Journal that used our recent policy paper with the Buckeye Institute, Reforming Kansas Tax Policy, to present some of the many different options for tax reform next year. We pointed out that Kansas is lagging behind economically compared to states that have followed through on tax reform and benefitted.

However, around the same time, the Bureau of Economic Analysis (BEA) announced that in the third quarter of 2023, Kansas had the fastest GDP growth rate of any state. These numbers followed up a similarly successful second quarter for the state as well. On one hand, it’s good Kansas has had recent growth. But on the other, digging a bit deeper, Kansas is experiencing a short-term catch-up on its sluggish long-term growth.

GDP Breakdown

In the BEA report, over half of Kansas’s growth between the second quarter and third quarter was due to the agriculture sector doing well. There could be a lot of reasons for this: for instance, hot temperatures in 2023 caused soybeans to mature faster, resulting in an earlier harvest. By October 1st, 24% of Kansas’s soybeans had been harvested compared to the five-year average of 11%. In November 2023, the USDA announced that China would be purchasing nearly 2 million tons of soybeans, some of the highest levels in recent history amongst competition from Brazil and icy relations between the US and China. More trade – be it domestic or international – means more money flowing to Kansas farms and the people who work there. According to the Federal Reserve Bank of Kansas City, crop production of corn was high, meaning more moneymaking opportunities.

By no means is this a comprehensive breakdown of every single dollar that caused Kansas’s high agricultural growth. But that’s the point: it’s reductive when the Kelly Administration pats itself on the back and implies their support is what caused the growth, not macroeconomic trends. With extreme drought expected over the next several years, it’s a possibility that this growth in the agriculture sector won’t be permanent. As an aside, this is a reason why agriculture will remain a top issue for the next decade.

Looking at Kansas’s economic performance over the last two decades tells a completely different story than the report as well. According to the BEA, Kansas’s GDP growth from 1998 to 2021, Kansas ranked 28th when compared to other states. This is nice, but middle-of-the-pack compared to Arizona, Florida, Texas, Utah, and several others that have enacted the types of tax reform advocated for in our recent study. By comparison, since 1998, Idaho has had the third-highest growth in wages and fifth-highest growth in GDP nationwide. In 2013, 90% of Idaho businesses were exempt from paying the personal property tax. In 2022, Idaho passed a flat tax rate on the corporate and individual income tax at 5.8% during a special session because of high tax collections. Again, a great quarter for GDP growth is good, but I’m looking at the long-term picture here.

Other Metrics

Similarly, GDP is just one measure of a state’s economy. According to the BEA again, Kansas ranked 44th in the country in private-sector job growth between 1998 and 2021. Throughout 2022, Kansas had a slower recovery of its jobs lost from the COVID-19 pandemic than several other states. According to the Bureau of Labor Statistics as of its November 2023 release, Kansas is 2.4% above its private-sector job levels in January 2020, right before the COVID-19 pandemic. 25 states – half the country – have had a larger pandemic recovery and growth from Kansas.

Again, the states with the largest recoveries are the aforementioned ones that have successfully accomplished tax reform. Idaho is a whopping 12.7% above its January 2020 job levels. North Carolina is 8.7%, and Utah is 11.3%.

BEA also says that Kansas has been 37th for wage growth from 1998 to 2021. Kansas has a net loss of almost 200,000 residents due to domestic migration to other states.

The information above is pulled from KPI’s Green Book publication, however, all the data we use is available through reports from the BEA or any of the other sources listed.

Kansas’s high quarterly growth rates are good in the short-run and do happen. But it’s worthwhile to be skeptical of Kansas’s long-term growth relative to other states if it doesn’t pursue competitive policies that are working in other states.