No state has ever taxed or spent its citizens to prosperity, and it’s not for lack of trying. Kansas Gov. Laura Kelly just approved a 9% spending increase for next year. That builds on a 7% increase this year, which topples the record-setting spending under Gov. Sam Brownback in 2018.
Spending will be 43% greater next year than if increased for inflation since 1995. Despite this enormous increase, Kansas is in its fourth consecutive decade of economic stagnation, with GDP and job growth falling further and further behind the national average.
Tax hikes go hand in hand with spending increases, and Kelly’s budget is setting Kansans up for their fourth tax increase since 2017. She says spending increases won’t cause tax hikes, but the data shows otherwise. How do politicians get away with this? The official budget projections ignore state law requiring a small ending balance equal to 7.5% of each year’s spending, and they don’t project beyond the current cycle. But the Kansas Legislative Research Department ran the numbers, and they show a $1.4 billion deficit over the next four years.
By the way, that doesn’t account for Medicaid expansion and other big spending plans Kelly proposed, which would easily add another $400 million to the four-year shortfall collectively.
So unless legislators muster the courage to control spending, Kansans are being set up for another tax increase.
Here’s how I predict it will happen:
At the opening of the 2021 legislative session, a big budget deficit will suddenly be discovered. Somehow it will be blamed on Brownback, and a tax increase will be proposed as the fiscally responsible thing to do. And since the increase in school funding of more than $1 billion is the main culprit of the deficit, the tax increase will be “for the kids.” Media pundits will sagely nod approval, and all will be well across the land.
Except it won’t.
We’re already experiencing the negative impacts of tax-and-spend schemes. Kansas had the fifth-worst growth in personal income in the nation last year. The state’s private sector lost jobs in 2017, and last year’s growth was only about half the national rate. Employers will continue struggling to find qualified employees because student achievement will remain stubbornly low and flat, despite billions more pumped into public schools.
The solution to Kansas’ economic challenge is clear: States that spend less also tax less — and grow more. The 2019 Green Book published by Kansas Policy Institute presents data from the Commerce Department’s Bureau of Economic Analysis, which shows states with lower taxes have much stronger economic growth:
▪ States with no income tax had 43% private sector job growth between 1997 and 2017, while other states grew just 22%. The 10 states with the lowest state and local tax burdens grew 38%, while those with the 10 highest burdens had just 24% gains.
▪ The same is true for private GDP — 141% growth for states with no income tax versus 111% for the rest. The 10 lowest burdened states grew 134%, but the 10 highest burdened increased by 119%.
▪ Efficient spending is the key to having lower taxes. Data from the National Association of State Budget Officers shows the states with an income tax spent 54% more per resident in 2017. The 10 highest burdened states spent 58% more than the 10 lowest burdened.
Legislators can begin reversing the decades-long cycle of economic stagnation by learning from the states that provide the same services at better prices. It’s hard work, but that’s the price of economic prosperity.
Dave Trabert is president of Kansas Policy Institute, a 501(c)(3) nonprofit focused on limited government.