The political ads for the Kansas governor’s race had a lot of finger pointing regarding the 2012 tax cuts and the state of the Kansas economy. Here is a bit of a history I collected from several journalists and pundits. Governor Brownback proposed a tax cut in 2012 which included payfors (payfors are usually new taxes/fees, the elimination of other tax deductions, and/or a reduction in spending to cover the loss of revenue; for example, Congress included about 12 new taxes to help pay for the Affordable Care Act). The Governor of Kansas does not have the power to change tax laws nor to pass a budget; that remains with the Kansas Legislature. What passed out of the Kansas House and Senate were even greater tax cuts than the Governor initially proposed, according to Jeremy Scott, Tax Analyst, with fewer payfors, and little reduction in spending. The Governor agreed to the changes and the 2012 tax bill became law.
The purpose of the tax cuts were to attract investment and create jobs. A stronger economy would then increase income resulting in an increase in tax revenue. Without new payfors and less spending, a budget shortfall should have been expected. During this time, four significant events also took place which made things worse.
• During the budget process, the Kansas budget office made a mistake and told the Legislature that they would have about $100 million more to spend than was realistic.
• According to Peter Roff, U.S. News & World Report, and Max Ehrenfreund, the global economy was still depressed which had a dramatic effect on three main sectors of the Kansas economy – agriculture, energy, and aviation. Accordingly, even with the growth attributed to the tax cuts, the Kansas economy grew at a significantly slower rate of growth than the rest of the country.
• The 2012 tax cuts eliminated personal income tax on pass through income (pass through income is income which is earned by an individual but is paid to a business and then the business pays it back to the individual), and a significant number of high income Kansas residents took advantage of the new law. There was a 20 percent increase in the number of Kansas citizens who created pass throughs after the new tax law went into effect. The impact was estimated by the Tax Foundation in Washington D.C. to be a loss of $200 to $300 million. Although a loss of revenue was expected, what wasn’t expected was the significant increase in individuals who would take advantage of this law and the higher loss of tax revenue.
• The Congressional Budget Office suggests as much as $147 million of the 2014 budget shortfall was caused by individuals shifting capital gains into prior fiscal years which had lower tax rates – a provision in the Bush tax cuts which impacted Kansas tax revenues.
The Kansas Legislature has been trying to play catch up ever since and finally repealed the tax cuts in 2017 which they had created in 2012. Governor Brownback opposed the repeal believing that tax revenues would catch up as the Kansas economy heated up (expecting success similar to that of Indiana and North Carolina). When you recall the political ads which dominated the governor’s race this month, who was blamed? Governor Brownback was made the scapegoat and none of the legislators pointing fingers accepted responsibility. To claim that Governor Brownback was solely responsible for the 2012 tax cuts and for the state of the Kansas economy is not the whole story. It appears that there is plenty of blame to pass around.