Lessons for Other States from Kansas' Massive Tax Cuts

March 27, 2014 7:48 PM

What's the matter with Kansas? It's the crippling tax cuts.
posted by T.D. Strange (58 comments total)

The tax cuts delivered lopsided benefits to the wealthy. Kansas’ tax cuts didn’t benefit everyone. Most of the benefits went to high-income households. Kansas even raised taxes for low-income families to offset a portion of the revenue loss; otherwise the cuts to schools and other services would have been greater still.

Feature, not bug.
posted by Faint of Butt at 7:54 PM on March 27, 2014 [28 favorites]

Pardon me while I pause to do the "escaped Kansas after living there for over 30 years" dance.
posted by rewil at 7:55 PM on March 27, 2014 [9 favorites]

If I had to guess, I'd bet the tax credit for sales tax on food (which was supposedly a sop to the poor) must be itemized. How many poor people itemize?
posted by notsnot at 7:57 PM on March 27, 2014

The tax cuts delivered lopsided benefits to the wealthy.

"So you talk about mobs and the working classes as if they were the question. You've got that eternal idiotic idea that if anarchy came it would come from the poor. Why should it? The poor have been rebels, but they have never been anarchists; they have more interest than anyone else in there being some decent government. The poor man really has a stake in the country. The rich man hasn't; he can go away to New Guinea in a yacht. The poor have sometimes objected to being governed badly; the rich have always objected to being governed at all."

- The Man Who Was Thursday, G. K. Chesterton.
posted by mhoye at 7:57 PM on March 27, 2014 [177 favorites]

You and me both rewill. Though it was only the first 18 years of my life...place is totally screwed.
posted by Windopaene at 8:07 PM on March 27, 2014 [1 favorite]

mhoye: well done.
posted by clockzero at 8:23 PM on March 27, 2014 [1 favorite]

High-quality schools are a crucial building block of economic growth. They determine the quality of much of the state’s future workforce and shape the minds of future community leaders and entrepreneurs.

And if you're trying to recruit workers to your state, it's going to be harder to do that if all the public schools are shitty. Not everyone wants to send their kids to private school.
posted by rtha at 8:24 PM on March 27, 2014 [1 favorite]

Most states exempt pass through income, FWIW. Some have franchise taxes but it's not a large tax.
posted by jpe at 8:41 PM on March 27, 2014

The text box text says Fully exempted business profits that are “passed through” from the firm to individual owners. No other state fully exempts these profits from taxation.b

and b says Nick Johnson and Michael Mazerov, “Proposed Kansas Tax Breaks for “Pass-Through” Profits Is Poorly Targeted and Will Not Create Jobs”, Center on Budget and Policy Priorities, March 26, 2012, http://www.cbpp.org/cms/?fa=view&id=3662.

Going to that link and the first bullet point is

Create a new and unwarranted tax break for many large businesses. Under the pending legislation, Kansas would be the first state in the nation to exempt what tax experts call “pass-through” income from an otherwise broad-based income tax. “Pass-through” income is income that — unlike most corporate income — is untaxed at the corporate level and passed through to the owners of a business entity, who normally then pay personal income taxes on it. Many pass-through businesses are very large, and a substantial share of the profit that would be tax-exempt under the governor’s proposal would be earned by large businesses, not small ones.

So... do you mean something different, or do they?
posted by rtha at 8:58 PM on March 27, 2014

Very few states tax pass through income at the entity level. That's why their statement is so odd. (50 state chart! pdf
posted by jpe at 9:01 PM on March 27, 2014

Oh, I see. The individual gets to exempt the income (or some portion thereof) that is passed through by the S corp. That is pretty wacky.
posted by jpe at 9:14 PM on March 27, 2014

Yeah, I was just coming to ask about that, as I worked my way through the piece linked in the box text of the first link.
posted by rtha at 9:22 PM on March 27, 2014

You mean you don't have an S corp? Plebes.
posted by benzenedream at 9:30 PM on March 27, 2014 [4 favorites]

Oh, I see. The individual gets to exempt the income (or some portion thereof) that is passed through by the S corp. That is pretty wacky.

My mother suggested I do exactly this when the law came through, so that I could be a corporation unto myself and live tax free.

Instead I moved to Washington. In the 4 months I've lived here I got my dream job and my city won the Super Bowl. I guess I came out ahead.
posted by hellojed at 9:31 PM on March 27, 2014 [14 favorites]

Also: oh man there's WINE in the grocery stores. I can get a bottle of burbon at 2am from the QFC. I can take a bus from my front door to the light rail to the airport. In a few months I can even buy *weed* from store fronts. There's a bonafide socialist on the city council! There are no right-to-work laws! My mayor's gay!
posted by hellojed at 9:39 PM on March 27, 2014 [43 favorites]

Yeah, Seattle is a hell of a lot different than back home. Welcome new Washingtonian!
posted by Windopaene at 9:58 PM on March 27, 2014 [1 favorite]

If the economy isn't improving it must be because taxes haven't been reduced enough. Keep bleeding the patient until he recovers.
posted by LastOfHisKind at 10:07 PM on March 27, 2014 [10 favorites]

That's another way to avoid state income taxes, hellojed.
posted by wotsac at 10:25 PM on March 27, 2014 [1 favorite]

I'm still in Kansas. I thought I had managed to escape but a family crisis brought me back.

Anyways, I'm feeling a little optimistic. Gov. Brownback's approval rating is very low and his Democratic opponent is ahead of him in the polls, though with a much smaller lead than I would like.

Locals in my normally oblivious tiny town have finally started to notice what the tax cut means for them with the local school slashing everything to the bone and not replacing the teachers and staff who are leaving this year. And at least one of the departing teachers is doing so because she's decided she can't handle the funding cuts any longer, and is being quite vocal about it.

So, for the moment public opinion both locally and statewide is for a big change in how the state is run. But the Koch money hasn't appeared yet. They bought the state legislature for pennies in the last election, giving themselves a legislative supermajority in the 2012 election by eliminating most moderate Republicans during the primary. Their Americans for Prosperity superpac was highly involved in even the smallest legislative districts.

I'm sure they'll send out their flyers and commercials highlighting God, Guns, Gays, Abortion, Immigrants, etc. in hopes of making the locals forget all about their dying schools and noticeably deteriorating roadways. Brownback and legislature changed the rules regarding the primary system, so I think they're rather nervous. I'm hopeful it won't work this time around but, considering the notoriously uneducated and somewhat bigoted Kansas voters, my optimism may be misplaced.
posted by honestcoyote at 10:28 PM on March 27, 2014 [8 favorites]

Keep bleeding the patient until he recovers.

My version is "Okay, so we landed pretty hard and hurt ourselves pretty bad. That means we need to jump from something higher the next time. Then we'll be able to fly, I'm sure."
posted by benito.strauss at 10:30 PM on March 27, 2014 [6 favorites]

It saddens me to see something like this happen to Kansas.

It's a great state and deserves better from its leaders.

Also, when the hell did Sam Brownback become governor?
posted by madajb at 12:05 AM on March 28, 2014 [2 favorites]

Well, that was totally unpredictable.
posted by MartinWisse at 12:16 AM on March 28, 2014

He slithered in 2010, pretty much inevitable after Sebelius left.
posted by rewil at 12:28 AM on March 28, 2014

He slithered in 2010, pretty much inevitable after Sebelius left.

63%, damn.
At least my old stomping grounds didn't vote for him.
posted by madajb at 1:07 AM on March 28, 2014

For the longest time; KS had the super-low sales tax of 3%; and now that is more than doubled and then some. And good fairy tale mid-western schools. Now; I am not sure WTF happened over a 20 year period, but there are a lot of work too much middle class and slowly sinking lower class. It is a sad observation to see in people during trips 'home'. Feel sorry for the place.
posted by buzzman at 1:17 AM on March 28, 2014

These sorts of draconian tax cuts are intended to cripple a state's ability to provide the public services many conservatives believe should be the province of the private sector (or simply not exist at all). This would include schools. I suspect the people pushing these cuts will look at the list of supposed failings...revenue loss, cuts to schools and services...as "mission accomplished".

As for the economic failings, I'm also pretty sure the argument would be that the cuts haven't gone deep enough, and another round of cuts is just what's needed to assure the private sector that the state is open for business.
posted by Thorzdad at 4:17 AM on March 28, 2014 [4 favorites]

“I like to pay taxes. With them, I buy civilization.”
― Oliver Wendell Holmes Jr.
posted by blue_beetle at 5:33 AM on March 28, 2014 [23 favorites]

This is pretty much what's happening in Wisconsin too. Though (fortunately) they haven't increased the sales tax yet, but they're talking about it in order to eliminate the income tax.
posted by drezdn at 5:48 AM on March 28, 2014

The cut taxes con is a perfect set-up. When it doesn't work, people get mad at the remaining government services and double-down on cutting taxes, and so the spiral begins. Before you know it your town is a Walmart, a tax-exempt mega-church, and a prison contracted out to some local millionaire.
posted by aught at 5:57 AM on March 28, 2014 [10 favorites]

It's not impossible for a state to succeed pursuing a low tax/low service strategy, but it depends on Kansas receiving a huge influx of business and people due to its low tax status and an economy whose activity can make up for the lost revenue.

Florida has lots of beaches, nice weather, and periodic property booms which attracts retirees and people looking to live someplace with low costs. Texas and Alaska have oil. Delaware attracts corporate law activity and can siphon off the economic activity of neighboring states. Dubai can attract lots of people and businesses from all over the world who want to work for a little while with no taxes while providing a lifestyle unavailable in other parts of the middle east.

What's Kansas's strategic advantage? I can't imagine that Brownback and his supporters are predicting that deep tax cuts will turn Kansas into the Dubai of the Midwest. Rather, I am pretty sure that a bunch of wealthy businessmen in Kansas simply want lower taxes. I mean, who doesn't? But the question is whether Kansas is going to become a better place to live for the median person or not. I am guessing no.
posted by deanc at 6:13 AM on March 28, 2014 [1 favorite]

Washington State has no income tax at all. Sales taxes, which are considered regressive by progressives, are the biggest source of revenue.
posted by three blind mice at 6:43 AM on March 28, 2014

The Oliver Wendell Holmes quote is actually: “Taxes are what we pay for civilized society.” </PEDANTRY>
posted by stopgap at 6:56 AM on March 28, 2014 [2 favorites]

Washington State has no income tax at all. Sales taxes, which are considered regressive by progressives, are the biggest source of revenue.

I'm curious about this-- Washington has sales taxes of 6.5%, which isn't especially high, and groceries are exempt. Also, property taxes are not especially high, compared to high property tax states like NJ, NH, and Texas.

So where does WA get its revenue from? How does it even out massive revenue swings from year to year? Is the state riding entirely on the tech boom?
posted by deanc at 7:08 AM on March 28, 2014 [1 favorite]

So where does WA get its revenue from?

A Citizen's Guide to the Washington State Budget reports Taxes 43.4%, Federal & Other Grants 28%, Licenses/Permits/Charges 18.5%:

Most of the money the state uses to pay for services comes from state taxes. Washington’s major tax sources include the sales tax, the property tax, and a rather unique tax called the Business and Occupation (B&O) tax, which is a tax on gross receipts rather than on profit or income. Washington is one of seven states that does not levy a personal income tax.

posted by stopgap at 7:13 AM on March 28, 2014

I'm curious about this-- Washington has sales taxes of 6.5%, which isn't especially high, and groceries are exempt. Also, property taxes are not especially high, compared to high property tax states like NJ, NH, and Texas.

It has a Business and Opportunity tax which is a tax on the gross receipts of a business.
posted by Talez at 7:14 AM on March 28, 2014

Sales taxes, which are considered regressive by progressives,

Sales taxes also have the added feature of actually being regressive. This isn't something that's a matter of taste.
posted by MisantropicPainforest at 7:18 AM on March 28, 2014 [14 favorites]

Sales taxes also have the added feature of actually being regressive. This isn't something that's a matter of taste.

Exactly. "Regressive" versus "progressive" when it comes to taxation are terms with specific well-defined technical meanings. These terms are not judgments based on personal values.
posted by saulgoodman at 7:26 AM on March 28, 2014 [1 favorite]

The tax cuts delivered lopsided benefits to the wealthy.

This is not just a feature, it is the feature. It is all about strip-mining nickels and then getting the hell out of Dodge. The disastrous effects resulting from this happen, not because they were necessarily specifically designed to, but because the architects of these plans just don't care beyond whatever makes them a couple more bucks soonest. As the GK Chesterton quote above states, the wealthy patrons of these acts have no long-term investment in Kansas. When the money there dries up, they'll just mine somewhere else.

I genuinely think that it's somehow worse than class warfare against the poor. It's a more Lovecraftian disinterested evil that destroys you while not even comprehending that you're a thing that exists at all.
posted by Legomancer at 7:44 AM on March 28, 2014 [13 favorites]

These terms are not judgments based on personal values.

Funny. I rarely hear conservatives call them regressive - "fair" is the label most commonly applied by the other half of the electorate, but I guess that's a matter of personal value.

Washington State sales and use taxes range from 7.0 percent to 9.5 percent depending on the county.

Local Sales and Use Tax Rates by City/County (pdf)

If taxes and government are such universally positive things, the Democrats should campaign on a platform of across the board tax increases. Don't just make it seem like someone else is going to have to pay which is just deceptive populism and anti-liberal. Make it simple and clear: "Vote for me and pay more tax." Put it to a democratic vote and let the people decide. Better yet, put specific tax increases to referendum (a half dozen or so which were on the last ballot I filled in for King County.)
posted by three blind mice at 7:58 AM on March 28, 2014

I rarely hear conservatives call them regressive

That's not my fault that conservatives don't know the right words for things.

However, conservative economists will use terms like progressive and regressive to refer to taxes, because those are words with meaning that don't have value judgments.

See here:

http://books.google.com/books?id=VvMvoiuCaewC&pg=PA268&lpg=PA268&dq=greg+mankiw+regressive+tax&source=bl&ots=xRk88-DiY6&sig=dR8wy-bAH0HOw-CpW05mgDHrgEw&hl=en&sa=X&ei=M481U_K3D4fMsQSl64K4Cw&ved=0CEYQ6AEwBA#v=onepage&q=greg%20mankiw%20regressive%20tax&f=false
posted by MisantropicPainforest at 8:04 AM on March 28, 2014 [6 favorites]

When conservatives talk about fair taxes, they often mean a single tier of tax that everybody pays (like, everybody pays 5% instead of having a tiered tax based on income where one group pays nothing, another group pays 5%, another group pays 10%, and another group pays 15%, or whatever - the groups that pay 10% and 15% want to pay less, and the group that pays nothing generally either doesn't vote or can be convinced that somebody they'd be paying 15%). I'm not sure if "fair tax" is always meant this way, but that's how I've seen it used. I've never seen it used to talk about sales taxes one way or the other.
posted by joannemerriam at 8:10 AM on March 28, 2014

If taxes and government are such universally positive things

This is a common misconception among many conservatives who simply think liberals are the opposite of them. While conservatives believe that taxes and government are universally negative things, liberals believe that the right amount of taxes and government is the amount necessary to accomplish the specified goals. Therefore, if Kansas's quality of life and public infrastructure goes to shit, because of the tax cuts, then the liberal argument would be that the tax cuts were bad ideas, while the conservative argument would be that the tax cuts and less government reach was good in and of itself and any negative consequences are just due to the market not having enough time to work or the public having cultural shortcomings that makes them undeserving of the quality of life that the previous regime provided at the expense of the wealthier residents of the state.
posted by deanc at 8:22 AM on March 28, 2014 [11 favorites]

I rarely hear conservatives call them regressive.

You seem to be confusing politics and economics. In the context of taxes, progressive and regressive are mathematical terms. They are not political descriptions.
posted by JackFlash at 9:23 AM on March 28, 2014 [5 favorites]

Isn't "fair taxes" usually deployed as a Luntzian focused tested synonym for a “flat tax” plan, which is again incredibly regressive, at least by generally accepted definitions of economic terms? After all, it would only be “fair” if everyone paid the exact same, or “flat”, nominal dollar amount, right?
posted by T.D. Strange at 9:27 AM on March 28, 2014 [3 favorites]

"Everybody pays 10% of their income" or "everyone pays 10% on every purchase" will be fair when the price of bread is "0.01% of your yearly income" and the price of rent is "4% of your yearly income per month."

Until that time, taxing people the same percentage of their income or their spending regardless of the size of that income is not fair, because they don't spend nearly the same percentage on food and housing, and don't have at all the same percentage left over as "disposable."

It doesn't make any sense to me at all to call flat taxes "fair".

"Regressive" refers to the fact that flat taxes claim a larger proportion of one's disposable income for poorer people than for wealthier people, and that is not a matter of opinion, it is a matter of math.
posted by OnceUponATime at 9:31 AM on March 28, 2014 [10 favorites]

Surely, this is an earth-shattering development. The first ever empirical evidence that austerity economics doesn't work.

Or not.
posted by mondo dentro at 9:36 AM on March 28, 2014

What's Kansas's strategic advantage?

Google fiber, cheap real estate, reasonable taxes. a well-connected airport, lower wages and (for now) a decently educated populous.

If i were doing a startup, and didn't need to be within the Valley hype machine, I would seriously consider Kansas City for a location if they weren't actively trying to destroy the place.
posted by madajb at 10:54 AM on March 28, 2014

I thought most of Kansas City is in Missouri.
posted by Carius at 12:09 PM on March 28, 2014

I dread going to Kansas City, MO, this summer because of the airport. It may be well-connected, but it's a miserable place for travelers.
posted by wintermind at 12:21 PM on March 28, 2014

A quick glance at their respective entries in wikipedia makes me think that Kansas City MO would be much preferable to Kansas City KS, so just be careful which one you'd end up in, madajb.
posted by rtha at 12:26 PM on March 28, 2014 [1 favorite]

Clearly Kansas just hasn't cut taxes enough.
posted by Mental Wimp at 12:29 PM on March 28, 2014 [1 favorite]

A quick glance at their respective entries in wikipedia makes me think that Kansas City MO would be much preferable to Kansas City KS, so just be careful which one you'd end up in, madajb.

It's true, most of the "good" parts of the Kansas City metro are in KCMO, not KCK, but there are still nice parts of KCK.
Depending on the nature of your startup, Shawnee-Mission or somewhere in Johnson County might be a better choice, anyway.

The point I was trying to make was that the business leaders of Kansas would be much better off touting their current, attractive small business climate rather than continuing down the path they seem to have chosen.
posted by madajb at 12:46 PM on March 28, 2014

I dread going to Kansas City, MO, this summer because of the airport. It may be well-connected, but it's a miserable place for travelers.

It always amused me that the local airport for Sprint world headquarters was MCI, but yeah, the airport design does not mesh well with modern security requirements.
posted by madajb at 12:51 PM on March 28, 2014 [1 favorite]

Interestingly, although progressive taxation is usually regarded in the US by leftists as the sine qua non of good tax policy, many European nations which spend more on welfare programs and government-mediated social benefits actually have regressive tax structures, usually VAT instead of an income tax. So although regressive taxes based on income might be the goal of the GOP in America, there are other ways to provide for the common good that initially seem counter-intuitive.
posted by clockzero at 5:58 PM on March 28, 2014 [1 favorite]

Here in Kansas, word on the street seems to be that plenty of conservatives are annoyed with Brownback too. Maybe they think he's a pinko or something. You can't veer too far to the right around here. Or maybe those are the conservatives who are still capable of feeling embarrassment.
posted by Flexagon at 6:24 PM on March 28, 2014

These sorts of draconian tax cuts are intended to cripple a state's ability to provide the public services many conservatives believe should be the province of the private sector (or simply not exist at all). This would include schools. I suspect the people pushing these cuts will look at the list of supposed failings...revenue loss, cuts to schools and services...as "mission accomplished".

I don't know Kansas but my impression was always that a lot of it was pretty rural, like where I'm from? And the thing is, around here, the private sector doesn't seem all that interested in education. There are two private primary schools in my county, and one of them has an attached virtual high school that graduates three to five kids every year. Everyone else goes to public school for free, and our public schools are all merging with each other because the property tax base isn't large enough to support them. We basically can't teach our kids to read without some wealth redistribution from the taxes of the rich people downstate, so what are we supposed to- oh. Never mind. I just got the whole thing.
posted by Snarl Furillo at 9:50 PM on March 28, 2014 [2 favorites]

I couldn't do more than skim this. Greed and stupidity on this scale raises my blood pressure and makes me want to hurt something. And I've never been anywhere close to Kansas.
posted by lhauser at 12:12 PM on March 29, 2014

Or maybe those are the conservatives who are still capable of feeling embarrassment.

It's definitely not that.
posted by T.D. Strange at 10:14 AM on March 30, 2014