Kansas Senate Bill Substitute HB 2117

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In May 2012, Kansas Governor Sam Brownback signed into law the Kansas Senate Bill Substitute HB 2117,[1] one of the largest income tax cuts in Kansas' history.[2] The bill was introduced in January 2011, was approved by Brownback on May 2012, and became effective on July 1 in the same year.[1]

The law eliminates income taxes for the owners of 191,000 businesses, and cuts individual's income tax rates.[3] The income tax cuts would provide US$231 million in tax relief in its first year, growing to US$934 million after six years.[3] A forecast from the Legislature’s research staff indicated that a budget shortfall will emerge by 2014 and will grow to nearly US$2.5 billion by July 2018.[3] The cuts were based on model legislation published by the American Legislative Exchange Council (ALEC).[4][5]

Brownback described the tax cuts as a live experiment, stating that "[o]n taxes, you need to get your overall rates down, and you need to get your social manipulation out of it, in my estimation, to create growth. We'll see how it works. We'll have a real live experiment."[6]

In an op-ed dated May 2014 in The Wall Street Journal, titled "A Midwest Renaissance Rooted in the Reagan Formula", Brownback compared his tax cut policies with those of Ronald Reagan, and announced a "prosperous future" for Kansas, Oklahoma and Missouri, by having elected the economic principles that Reagan laid out in 1964.[7] The Kansas tax cuts were enacted as a result of a bill signed into law by Kansas' governor Sam Brownback on May 22, 2012.[8] The cuts reduced the state's income tax rates across the board; specifically, it reduced the top income tax rate from 6.45% and 6.25% to 4.9%, and reduced the bottom rate from 3.5% to 3%. The same bill also eliminated one of the three brackets in the state's tax plan, as well as the entire income tax owed by hundreds of thousands of small businesses across the state.[8]

The tax cuts caused state revenues to fall by hundreds of millions of dollars and created large budget shortfalls.[9] A major budget deficit led to cuts in areas including education and transportation.[10][11] In the run-up to the 2014 gubernatorial election, over 100 former and current Kansas Republican officials criticized Brownback's leadership and endorsed his Democratic opponent, Paul Davis.[12][13][14] Brownback was narrowly re-elected.[15] In June 2017, the Kansas Legislature rolled back Brownback's tax cuts, overriding Brownback's veto, and enacted tax increases.[16]

History[edit]

The original bill proposed by Brownback included a provision to increase the state sales tax, as well as the elimination of numerous tax credits and deductions, to offset the losses expected to result from the cuts. However, after he sent this bill to the legislature, they removed the deductions before sending it back to him, after which he signed it into law.[17] Brownback signed the bill into law with the objective of stimulating job creation and economic growth, arguing that the cuts would pay for themselves by increasing revenue by boosting the state's economy.[18] Supporters of the cuts pointed to projections from the Kansas Policy Institute which predicted that it would lead to a $323 million increase in tax revenue.[19] Brownback also predicted that in each of the next four years, the cuts would bring 25,000 new jobs to Kansas.[20]

Benefits for state lawmakers[edit]

According to Bryan Lowry of the Wichita Eagle, almost 70% of Kansas lawmakers, as well as Governor Brownback and his wife, stand to benefit personally from the tax cuts. This is because these lawmakers own a business or property that, under the law, they are exempted from paying taxes on the non-wage income they gain from it.[21]

Reception[edit]

The act has received criticism for shifting the tax burden from wealthy Kansans to low- and moderate-income workers,[22] with the top income tax rate dropping by 25%.[23] Under Brownback, Kansas also lowered the sales tax and eliminated a tax on small businesses.[23] The tax cuts helped contribute to Moody's downgrading of the state's bond rating in 2014.[24] They also contributed to the S&P Ratings' credit downgrade from AA+ to AA in August 2014 due to a budget that analysts described as structurally unbalanced.[25]

Brownback's tax consultant and supply-side economist Arthur Laffer said the cuts would support job growth, but the state has lagged national rates since.[23] As of June 2014, the state has fallen far short of projected tax collections, receiving $369 million instead of the planned-for $651 million.[26] As of May 2016, the state's tax revenue for that fiscal year was $420 million below the amount raised the year the tax cuts first took effect.[18]

According to Michael Hiltzik in an article published on July 2014, job growth in Kansas is trailing behind the national trend, revenues are declining every month, and courts and state services as well as healthcare and assistance to the poor have suffered as a results from the cuts.[27] According to the Center on Budget and Policy Priorities, the changes introduced by Brownback will cut the taxes of the wealthiest 1% of Kansans by 2.2%, while the poorest 20% of Kansans will see their taxes increase by 1.3%, and that the large revenue losses deepened the recession's damage to schools and other state services while not boosting the economy, and warns that "States considering deep tax cuts in hopes of sparking a surge of economic growth should look carefully at Kansas."[28] From March 2015 to March 2016, Kansas gained 800 private-sector jobs, an increase of 0.1 percent.[29] Since January 2013, private sector jobs in Kansas have grown by 3.5%, less than half of the national rate of 7.6%.[30] Kansas's job growth has also occurred at a slower rate than it has in neighboring states Missouri and Colorado.[19] Instead of the 100,000 new jobs Brownback had promised would be created in the four years of his second term, as of January 2016 (slightly more than a year into this term), 700 had been added during this term.[19]

Grover Norquist defended Brownback's tax cuts as "the right thing for the economy", and asserted that Kansas is in better economic shape than what has been described by critics, noting that 57,000 jobs were created in the private sector and more funds have been invested on education than in the past. He further asserted that Kansas "[has] provided a model, a successful model, that will phase out the income tax."[31]

The editorial board of the Washington Post wrote in September 2014, that Brownback has undertaken "an extreme trial-by-revenue-deprivation in a state so clearly lacking the economic means to withstand it", asserting that job creation and economic growth in Kansas are lagging those of its neighbor states, and calls these policies "radical" and an departure from the more pragmatic previous conservative traditions in Kansas.[32] '

The New Republic reported on the cuts as having a negative impact on public education, resulting in larger class sizes, increased fees for kindergarten, the elimination of funded arts programs and the reduction in janitorial personnel and librarians, and described Brownback's attempt to create a "conservative utopia" as failing to increase job growth.[33]

Brownback's "conservative experiment" was described in the New York Times as a laboratory for policies that are "too far to the right". As a result, more than 100 current and former Republican elected officials endorsed Paul Davis, Brownback's opponent in the 2014 gubernatorial race.[34]

Repeal[edit]

In February 2017, a bi-partisan coalition presented a bill that would repeal the pass-through income, the "most important provisions of Brownback's overhaul", and raise taxes to make up for the budget shortfall. The Senate passed SB 30 (38 - 0 with 2 not voting) on February 2, 2017. [35] The House passed SB 30 as amended (123 - 2) on February 22, 2017. [36] The Conference Committee Report was adopted by both the House (69 - 52) and Senate (26 - 14) on June 5, 2017. On June 6, 2017 the bill was sent to Governor Sam Brownback for signature, but he vetoed the bill. Later in the day coalition of Democrats and newly-elected Republicans voted to override the veto and SB 30 became law. [37] Senate Bill 30 repealed most of tax cuts implemented by HB 2117. The bill would:[38]

  • Raise individual income taxes.
  • Repeal the pass-through income exemption.
  • Reenact the itemized deductions for mortgage interest, property taxes paid, and medical expenses.
  • Reenact a child care tax credit.
  • Reduce the low-income exclusion level

Brownback's tax overhaul was described in a June 2017 article in The Atlantic as the United States' "most aggressive experiment in conservative economic policy". The drastic tax cuts had "threatened the viability of schools and infrastructure" in Kansas—Democrats and some Republicans "rebelled against cuts to the schools".[16]

References[edit]

  1. ^ a b "Senate Substitute for HB 2117 by Committee on Taxation -- Reduction of income tax rates for individuals and determination of income tax credits; severance tax exemptions; homestead property tax refunds; food sales tax refunds". Retrieved October 29, 2014.
  2. ^ "Kansas small-business owners say elimination of income tax is a big help". The Wichita Eagle. May 24, 2012.
  3. ^ a b c "Brownback Signs Tax Cuts Law In Statehouse Ceremony". KAKE News. Archived from the original on October 29, 2014. Retrieved October 29, 2014.
  4. ^ Rothschild, Scott (December 17, 2013). "Brownback says perception of ALEC influence is 'overblown'". Lawrence Journal-World.
  5. ^ Pilkington, Ed (November 20, 2013). "Obamacare faces new threat at state level from corporate interest group Alec". The Guardian.
  6. ^ "Brownback gets heat for 'real live experiment' comment on tax cuts". Lawrence Journal World. Retrieved October 28, 2014.
  7. ^ Brownback, Sam. "A Midwest Renaissance Rooted in the Reagan Formula". Retrieved October 28, 2014.
  8. ^ a b Cooper, Brad (May 23, 2012). "Brownback signs big tax cut in Kansas". Kansas City Star. Retrieved October 10, 2016.
  9. ^ Casselman, Ben; Koerth-Baker, Maggie; Barry-Jester, Anna Maria; Cheng, Michelle (June 9, 2017). "The Kansas Experiment Is Bad News For Trump's Tax Cuts". FiveThirtyEight. FiveThirtyEight. Retrieved October 4, 2017.
  10. ^ "Kansas Legislature approves budget deal, after lawmakers deliver blistering critiques of state finances," Archived October 4, 2017, at the Wayback Machine. May 2, 2016, Topeka Capital-Journal
  11. ^ "Kansas Republicans Sour on Their Tax-Cut Experiment" February 24, 2017, The Atlantic
  12. ^ "Paul Davis secures endorsement of more than 100 former and current Republican officials," July 15, 2014, Wichita Eagle
  13. ^ "Some in Kansas GOP Break With Gov. Brownback, Endorse Democratic Opponent," July 15, 2014, Wall Street Journal
  14. ^ Eligon, John (September 14, 2014). "Conservative Experiment Faces Revolt in Reliably Red Kansas". The New York Times. Retrieved September 15, 2014.
  15. ^ Sam Brownback prevails over Paul Davis for second term as Kansas governor, Wichita Eagle, Byron Lowry & Suzanne Perez Tobias, November 4, 2017. Retrieved March 13, 2017.
  16. ^ a b Berman, Russell (June 7, 2017). "The Death of Kansas's Conservative Experiment". The Atlantic. Retrieved June 7, 2017.
  17. ^ Williamson, Kevin D. (May 3, 2016). "Starving the Beast in Kansas". National Review. Retrieved October 10, 2016.
  18. ^ a b Caldwell, Patrick (May 4, 2016). "Trickle-Down Economics Has Ruined the Kansas Economy". Mother Jones. Retrieved October 10, 2016.
  19. ^ a b c Levitz, Eric (March 18, 2016). "The Republican Party Must Answer for What It Did to Kansas and Louisiana". New York Magazine. Retrieved October 10, 2016.
  20. ^ Fox, Justin (March 29, 2016). "Kansas Tried Tax Cuts. Its Neighbor Didn't. Guess Which Worked". Bloomberg View. Retrieved October 10, 2016.
  21. ^ Lowry, Bryan (October 7, 2016). "Do Kansas lawmakers personally benefit from business-tax cuts?". The Wichita Eagle. Retrieved October 10, 2016.
  22. ^ "Kansas tax act most regressive in nation". The Lawrence Journal-World. May 24, 2012.
  23. ^ a b c Peters, Mark (June 10, 2014). "Sam Brownback's Tax-Cut Push Puts Kansas Out on Its Own". Wall Street Journal. Archived from the original on June 15, 2014. Retrieved October 26, 2017.
  24. ^ Kraske, Steve (May 2, 2014). "Gov. Sam Brownback suffers a political brownout". The Kansas City Star. Retrieved June 13, 2014.
  25. ^ Reuters Staff. "S&P downgrades Kansas in another blow to Brownback tax cuts". www.reuters.com. Reuters. Retrieved August 7, 2014.
  26. ^ Josh Barro (June 27, 2014). "Yes, if You Cut Taxes, You Get Less Tax Revenue". The New York Times. Retrieved September 2, 2014.
  27. ^ Hiltzik, Michael (July 9, 2014). "How Tea Party tax cuts are turning Kansas into a smoking ruin". Los Angeles Times. Retrieved October 27, 2014.
  28. ^ Michael Leachman; Chris Mai (March 27, 2014). "Lessons for Other States from Kansas' Massive Tax Cuts" (PDF). Retrieved October 27, 2014.
  29. ^ Associated Press (April 19, 2016). "Kansas loses patience with Gov. Brownback's tax cuts". CBS News. Retrieved October 10, 2016.
  30. ^ Mazerov, Michael (August 12, 2016). "Kansas' Tax Cut Experience Refutes Economic Growth Predictions of Trump Tax Advisors". Center on Budget and Policy Priorities. Retrieved October 10, 2016.
  31. ^ "Norquist defends tax cuts despite Brownback woes in Kansas". The Hill. Retrieved October 29, 2014.
  32. ^ Editorial Board (September 21, 2014). "Sam Brownback's failed 'experiment' puts state on path to penury". The Washington Post. Retrieved October 28, 2014.
  33. ^ Judis, John. "This Is What's the Matter With Kansas". Retrieved October 28, 2014.
  34. ^ Eligonsept, John (September 14, 2014). "Conservative Experiment Faces Revolt in Reliably Red Kansas". The New York Times. Retrieved October 28, 2014.
  35. ^ "Bills and Resolutions - Kansas State Legislature SB30 Final Action - Passed".
  36. ^ "Bills and Resolutions - Kansas State Legislature SB30 Final Action - Passed".
  37. ^ "SB 30 - Bills and Resolutions - Kansas State Legislature".
  38. ^ "SENATE BILL No. 30 By Committee on Assessment and Taxation" (PDF).

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