Yael T. Abouhalkah

Yael T. Abouhalkah: In defending Gov. Sam Brownback’s tax cuts, two economists bungle the job

Gov. Sam Brownback delivered his State of the State address to a joint session of the Legislature on Jan. 12 without mentioning the huge budget problems in Kansas.
Gov. Sam Brownback delivered his State of the State address to a joint session of the Legislature on Jan. 12 without mentioning the huge budget problems in Kansas. The Associated Press

Two nationally known economists who helped craft Gov. Sam Brownback’s hefty income tax cut package in 2012 have an update on how things are working out in Kansas.

Summed up, they’re just peachy.

Arthur Laffer, a onetime economic adviser to President Ronald Reagan and a principal architect of so-called supply-side economics, and Stephen Moore, a Heritage Foundation economist, wrote in Investor’s Business Daily on Monday that “some fun stuff” is now happening in the Sunflower State.

The punchy headline: “Sweet supply-side revenge for tax cutters in Kansas.”

On Wednesday, Brownback’s deputy communications director Melika Willoughby promoted the article to the public: “Reality and experience tell us you won’t hear this from the local media. But now you are equipped with the truth, ready to engage and to set the record straight.”

Just to be clear, however, the Laffer-Moore article avoids mentioning the fact that Brownback and the Legislature pushed through the largest tax increase in state history in 2015, setting a higher sales tax rate and boosting taxes on tobacco and liquor.

The article also does not point out the huge budget cuts Brownback has been forced to make in the last two years.

It does not discuss the fact Brownback has transferred more than $1 billion from the state’s road fund to balance the general fund budget.

Most notably, it refrains from acknowledging that many other U.S. states are doing as well or even better than Kansas without the use of budget-busting tax cuts.

Still, yes, let’s do “set the record straight” by looking at four key contentions in the Laffer-Moore piece.

 

1. The unemployment rate is much improved.

Laffer and Moore correctly state that Kansas’ unemployment rate was 6.8 percent when Brownback took office in January 2011. They later celebrate that the most recent unemployment rate for Kansas “is 3.9 percent — 11th lowest in the nation.”

Now for the rest of the story.

They left out the fact that Kansas is essentially in the same situation it was five years ago — when it had the country’s 12th lowest unemployment rate.

Kansas also was hardly alone in having a reduced unemployment rate since early 2011. The U.S. rate fell over the same time period from 9.0 percent to 5.0 percent.

Proportionately, that was even a little better than Kansas’ decline.

2. The state’s pension system is on firmer footing.

The Laffer-Moore article says the Kansas pension system’s funding ratio — essentially how much the state has to cover its pension liabilities — was “in the 50 percent range” when Brownback took office in January 2011.

That’s wrong.

The funded ratio was 62 percent on Dec. 31, 2010, according to the 2015 report of the Kansas Public Employees Retirement System.

Laffer and Moore later write that the “pension system’s funding ratio is now 62 percent and projected soon to rise to 66 percent — considered well into the ‘safe zone’ as far as funding ratios go.”

The KPERS report shows that the funding ratio dipped as low as 56 percent in Brownback’s second year in office but indeed was up to 62 percent at the end of 2014, the last data available from KPERS.

In other words, the funding ratio for Kansas’ pension system was exactly the same four years after Brownback took office.

To give the governor and Legislature credit, they did approve, in 2012, needed steps to increase state contributions to public pensions.

However, Kansas is nowhere near a “safe zone” with a funding ratio in the 60s. The U.S. Government Accountability Office notes, “Many experts consider a funded ratio of about 80 percent or better to be sound for government pensions.”

One other point: Kansas had the 12th worst pension funding ratio of U.S. states at the end of 2010, just before Brownback took office, a Morningstar report shows.

At the end of 2013, the last available data for the entire country, Kansas had slipped to a tie for the ninth worst funding ratio, according to a Pew Charitable Trusts report.

3. Income tax cuts did not cause the state’s budget problems.

The Laffer-Moore article includes oft-repeated arguments that national tax-law changes negatively affected Kansas’ financial situation, which helped lead to some incorrect revenue projections, while more people than expected took advantage of the tax-free structure created by Brownback and the Legislature.

The explanation wraps up with this contention: “And lastly, if you look at the numbers, sales tax revenues appear to be the prime culprit of revenue shortfall — hardly something caused by an income tax cut.

“But, whatever the reasons, the fact is that Kansas had a large negative shock to its overall budget in 2014 and 2015, which was only peripherally related to Brownback’s tax bill.”

A “look at the numbers” shreds that contention.

Using figures supplied by Kansas budget and revenue officials, and keeping in mind the Brownback income tax cuts took effect at the start of 2013:

▪ Sales and use tax receipts did indeed go down after the tax cuts. In the 2014 and 2015 fiscal years, those receipts averaged $60 million less per year than they had been in fiscal 2013.

▪ However, individual income tax revenues in the same two years dropped an average of $683 million per year from what they were in 2013.

So the loss of income tax receipts was 11 times larger than the loss of sales tax revenue.

Yes, Virginia, the Brownback income tax cuts caused the “large negative shock” to the state’s overall budget.

4. The state is enjoying strong job growth.

Laffer and Moore state that “Kansas’ private-sector employment is growing faster since the tax cuts took effect than all of its neighbors, save for steroidal Colorado.”

That’s true. Kansas had 4.3 percent more private-sector jobs in December 2015 than it had in January 2013, according to the federal Bureau of Labor Statistics. That’s better than Nebraska, Missouri and Oklahoma, yet far behind Colorado.

Here’s the pesky rest of the story.

Measuring private sector jobs is not the complete picture of employment in a state. The BLS reports total nonfarm employment when it puts together unemployment numbers, because that includes private plus public sector jobs.

Many conservative politicians and economists decry the value of public-sector jobs, calling them a drain on taxpayers. But those are employed people. And major BLS reports always measure total nonfarm employment, not the smaller sector of private employment.

On that score, Kansas’ total nonfarm employment increase of 3.3 percent is still better than Missouri and Oklahoma since January 2013, but behind Nebraska as well as Colorado.

Now we get to the bigger, more meaningful picture.

Nationally, total nonfarm employment since January 2013 has grown by 5.9 percent — far outpacing Kansas’ 3.3 percent growth rate.

Looking at just private-sector jobs, the U.S. growth rate has been 6.9 percent — way above the 4.3 percent of the Sunflower State.

To add insult to injury for Laffer and Moore, who constantly whine about states with steep income taxes, high-tax California and New York have added employment much faster than Kansas.

Brownback in 2012 infamously promised, “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy. It will pave the way to the creation of tens of thousands of new jobs, bring tens of thousands of people to Kansas, and help make our state the best place in America to start and grow a small business.”

Yet here we are at the start of the fourth year of the tax cuts being in place.

And the best that the Brownback fan club has to offer is that Kansas’ unemployment rate has fallen just like rates in other states; the Kansas pension system is about as bad off as it was in 2010; and jobs are generally growing more quickly in the rest of the United States.

That’s the consequence of supply-side disaster — not sweet revenge — for the Brownback tax cuts.

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