In a Feb. 13 editorial, The Kansas City Star’s editorial board warned Missouri against cutting taxes, claiming it is “a risky way to run a state government.” Proponents of big government regularly use the Kansas story to scare legislators who want to reduce taxes. However, some background is essential so Missouri can avoid the actual mistakes from Kansas — the stated objective of the editorial board.
People often say that Kansas’ economy failed to keep up with the nation after tax reform passed. However, the crucial point that is rarely discussed is that the state’s economy also trailed the national average for many years before its 2012 tax reform. That fact was a driving force for many lawmakers as they enacted the tax cuts that helped spur private sector growth and increase Kansas’ economic outlook ranking from a low of 27 to a high of 11, according to the the 501(c)(3) nonprofit American Legislative Exchange Council’s annual report, “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.”
Kansas also enjoyed gains in other competitiveness measures. Unfortunately, state lawmakers made the mistake of allowing government expenditures to grow while they were reducing taxes. As a result, Kansas has been plagued by a self-inflicted budget crisis, provoking lawmakers to reverse tax cuts and raise taxes. Tax reform’s detractors naturally blame tax cuts for wrecking the Kansas budget, but record-setting spending is the real culprit.
What continues to go unreported is that the performance of the Kansas economy improved after tax reform, even as the state suffered disproportionally from the global downturn in commodities such as oil and agriculture.
After tax reform, Kansas exhibited marked improvement, jumping from 40th place for private sector job growth between 1998 and 2012, to 30th from 2012 to 2015. The state still underperformed nationally, but Kansas’ relative performance improved after the maligned tax reform.
Kansas is the left’s favorite red herring to distract attention from major tax reform success stories like North Carolina, Indiana and Wisconsin, to name just a few.
Since 2013, North Carolina lawmakers have lowered the personal income tax rate from a graduated 7.75 percent to a flat rate of 5.499 percent and slashed the corporate rate from 6.9 percent to 3 percent. As a result, their economy boomed, and the unemployment rate was cut nearly in half.
Unlike their counterparts in Kansas, lawmakers in North Carolina were careful to restrain spending growth when they cut taxes. So while Kansas was scrambling to cover multimillion-dollar budget holes, the Tar Heel State enjoyed increasing revenue and budget surpluses, and its rainy day fund recently hit a record $1.8 billion. Furthermore, the dividends from North Carolina’s successful tax reform and budget prudence provided public school teachers with an average raise of 9.6 percent over two years.
Missouri can boost its economic outlook by returning money to the pockets of hardworking taxpayers and job creators — and experience the same tax reform success as states that have done it correctly. Without tax reform, Missouri faces the threat of falling behind in the race for economic competitiveness if states in the region like Iowa, Nebraska, Arkansas and Tennessee follow through on plans to cut taxes this year.
There are right and wrong ways to go about tax reform, and the overspending pitfalls from Kansas should be kept in mind. However, North Carolina provides Missouri with a better road map for tax reform that works.
State Sen. Ed Emery represents the 31st District in the Missouri Senate. He co-authored this with Jonathan Williams, chief economist at the American Legislative Exchange Council and vice president at its Center for State Fiscal Reform.