happiness

After Record Tax Increases, Kansans’ Happiness Suffers

The latest snapshot of the Kansas economy isn’t a good one for Kansans. Its private sector is ranked as the 31st fastest growth in the nation for 2018. For the last quarter in 2018, Kansas’s private sector was the 42nd fastest. As a result, economic opportunities elsewhere continue to flourish at the expense of Kansas opportunities. We can understand how constant tax increases can slow growth & hamper Kansans’ financial prospects. However, do we realize it might also affect their happiness?

The Bureau of Economic Analysis reported Real (adjusted for inflation) Gross Domestic Product for all 50 states and the nation for the 2018 year. This is the official metric of a state’s economic performance, measuring the activity of businesses, employees, and their consumption.
Kansas has under-performed against the national average. The table below compares the private sector growth between Kansas and the U.S., and breaks it down by sector. Out of 19 major economic sectors, Kansas surpassed the national average in only 4 industries: Manufacturing, Wholesale Trade, Transportation and Warehousing, and Arts, Entertainment and Recreation.

The other 15 Kansas industries are not only growing slower than the national average, but some, like Mining and Finance & Insurance, are shrinking. According to the Kansas Department of Revenue roughly 300,000 small businesses were forced to pay state income taxes in 2017 and 2018. This group of personal businesses and Kansas families also paid higher taxes due to the vetoed Federal Tax Windfall. As The Sentinel reports , Kansas saw faster growth and a higher state rank during the years in which sales and income tax rates were much lower. Perhaps revising the state’s policy on personal and business taxes would help in reversing the trends in private industry.

Can this information shed some more light into why state sales tax revenues are shrinking? Perhaps. We aggregated retail trade and leisure and hospitality, and watched its performance since the end of the recession. The chart below shows the difference between the U.S. and Kansas.

This index can be thought of as a “Happiness Index”, a measure of consumer confidence. The happier Kansans are, the more likely they will buy goods, see a dinner and a movie, travel and stay at hotels, drink, etc. Most purchases made in these sectors have state sales tax applied to them. This means that for the government budget, growing happiness means growing sales tax revenues. While a growing index is a positive, there should be concern to the “Happiness Index”‘s position to the national average.

Even though in 2018 Arts, Entertainment & Recreation saw a faster boost in activity than the national average, combine it with other leisure and retail activities and we can see the opposite. There were times when Kansans’ happiness approached the rest of the country. However since 2015, spending on retail and leisure has fallen. Now, it has flat-lined for four straight quarters. By the end of 2018, Kansans are more pessimistic than their fellow Americans. Given this track record, perhaps it’s true that Kansans are happier when the economy is growing at a healthier clip. This provides for more consumer confidence in the economy and higher spending on recreational or entertainment purchases.

Who can blame them? In the 3rd quarter of 2015 Kansas raised what was then the largest tax increase in state history; making goods and recreational services more expensive. In 2017, Kansans saw another record tax increase, this time on their paychecks. Since then, the economy has slowed, & shopping has suffered, despite claims the extra tax revenue and spending is good for the economy. Clearly there is a limit. We must ensure core government services can be provided. However, it shouldn’t be at the expense of Kansans’ well-being and outlook on life.