Kansas Secretary of Revenue Nick Jordan and I go way, way back — decades, if you must know. As long as I have known him, he has been an upbeat, optimistic person. So when he says he is “pleased with the economic indicators” in Kansas and that he is “happy with where Kansas is at,” I believe he means it.
I met with the secretary last week, along with the director of Department of Revenue and their economist, who presented me with a blizzard of charts and data to prove that the tax cuts are working.
The meeting was preceded by an editorial in Investor’s Business Daily, the headline of which read, “Kansas’ Job-Creating Machine Shows That Tax Cuts Work.”
The state had a good February. I hope this is the beginning of a long-term trend.
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IBD did point out in its editorial, “Granted, these are early returns, and job numbers jump around from month to month.”
But let’s not throw a wet blanket on Jordan’s story for February. During that month, only Utah beat Kansas in the nation for the percentage growth of private sector job creation.
Maybe the tax cuts are starting to have a positive effect. I’m trying hard to have an open mind.
Jordan contends there have been 8,000 first-time tax filers, mostly coming from Johnson, Wyandotte and Sedgwick counties. Much of that, he says, is coming from Missouri taxpayers in Kansas City moving to Kansas to take advantage of the tax breaks.
However, Kansas is in such a deep hole financially that growth alone — even at a rapid pace — will not erase an impending deficit of more than $600 million.
A good part of that deficit — $200 million — comes from a program that Jordan pushed hard and ultimately passed. That is, that small business owners pay no taxes on their profits.
It was estimated at the time of the tax cuts that 191,000 corporations would be affected. But in 2013, 333,000 tax filers claimed the exemption.
Critics believe company owners, by the droves, switched to Subchapter S corporations or limited liability companies (LLC) to take advantage of this giveaway.
Jordan and his staff say no. It is their opinion that the difference between what was forecast and what actually occurred was due to growth. That seems like a stretch.
Anyway, whether it was growth or a switcheroo is beside the point. The tax exemption is costing the state far more than anticipated, and this will need to be fixed when the Legislature reconvenes later this month. While Jordan said uncertainty will be created if that exemption is changed, he also said that it is up to the Legislature and governor to set policy and that he will be having lots of discussions over the break to reach a consensus.
As to the rest of the deficit that has been created, Jordan does not agree that tax cuts are to blame. Rather, he postulates that 2013 income did not grow 5 percent, as expected but instead declined 2 percent. This was a “capital gains” problem that was created when the federal tax code changed, he said. That is hard for me to swallow.
About a year ago, Jordan and I met to go over numbers and charts. He was making forecasts at that time that were contrary to those of Duane Goossen, former Kansas budget director for 12 years under both Republican and Democratic governors. Goossen was very pessimistic and forecast massive deficits.
Jordan said at the time that Goossen’s forecasting did not take into consideration economic growth, resulting from lower taxes.
Goossen’s forecasts turned out to be correct.
Jordan thinks Goossen will eventually be proved wrong, when the positive economic effect of tax cuts kick in.
“It takes time,” said Jordan.
But, in the meantime, the state constitution says Kansas must always balance its budget.
What happens to Kansas schools, roads and the safety net when the state moves to balance the budget? Even if Jordan has some bona fide arguments, that just won’t fix the budget crisis that is staring us in the face.
To reach Steve Rose, longtime Johnson County columnist, send email to email@example.com.