••• Tax & Spending •••

Small businesses pay for ineffective megasubsidies

tax increase

Kansas has $2 billion in reserves and continues to exceed monthly revenue estimates, yet Governor Laura Kelly is quick to elicit the issues with the Brownback tax cuts whenever tax reform that isn’t her own arises. At the same time, she continues to distribute hundred-million dollar megasubsidies to corporations while small businesses and families miss out on the tax breaks she’s offering to well-connected firms.

Yesterday, a new APEX project with Integra Technologies to build a semiconductor factory in Wichita was announced. The $1.8 billion facility claims to offer 2,000 jobs in return for $300 million in subsidies from the state. That’s an estimate of $150,000 in taxpayer cash per job. Unlike the first APEX project with Panasonic that could reach over $1 billion in subsidies, the Integra project includes job requirements. Similar to the original APEX deal it was also negotiated in secrecy, is exempt from KORA requests, and required all legislators involved to sign nondisclosure agreements. This makes transparency (or a lack thereof) a fundamental issue. The public part of the deal also says it’s contingent on federal CHIPS money – the federal semiconductor bill passed last year – to actually take effect. The door has been opened for megasubsidies to continue with shaky oversight over hundreds of millions of dollars.

Wichita Mayor Brandon Whipple implied that he knew Integra wanted to expand for years, which leads to the core issue of Kansas’s various subsidies like APEX, STAR, and PEAK: they simply move the existing economic activity to different areas rather than create it. A study of the state’s PEAK program (Promoting Employment Across Kansas) by Professor Nathan Jensen currently at the University of Texas, Austin found that PEAK recipients were no more likely to create jobs than non-PEAK recipients.  Dr. Arthur Hall, Executive Director of the Brandmeyer Center for Applied Economics at the University of Kansas, reached a similar conclusion in a study of STAR bond projects in Wichita.

This also comes after a Division of Post Audit study found that five of the Department of Commerce’s incentive programs failed to create economic impacts that outweighed the costs of their subsidies.

These subsidies represent millions of dollars from small businesses and families in Kansas going to massive corporations despite the fact that pass through-businesses represent the overwhelming majority of job creation in the state. Between 2013 and 2014, 82% of the private-sector jobs created in Kansas were in pass-through businesses at a rate that was three times greater than before the Brownback tax cuts. While megasubsidies bring jobs on paper, the long-term growth comes from small businesses.

While Brownback’s ”experiment” failed because it didn’t balance spending with the initial revenue decrease (an 8.5% reduction in spending would have worked), 24 states across the country have cut their income taxes and have not experienced the same budget problems as Kansas did but also experiencing the benefits. Studies of flat taxes in Europe have found that their implementation increases the number of people working and the number of hours they work, with the most significant effects coming with tax cuts for people with lower incomes. Every state provides the same basket of services, but some states do so at lower costs, and that allows them to have lower taxes.

For example, the states that tax income spent 52% more per resident in 2020 than the states that tax income and Kansas spent 55% more per resident. Between 1998 and 2020, the states without an income tax had a 45% increase in private-sector jobs, compared to just 18% in the other states.  The ten states with the lowest combined state and local tax burden also outperformed the ten states with the highest combined tax burden (33% vs. 19%).

So, as the state continues to exceed its revenue estimates by tens of millions of dollars and the pile of taxpayer cash keeps growing, the state can and should offer widespread relief to families and businesses instead of concentrated megasubsidies for the few.