More About Nicholas Johnson

Nicholas Johnson

Johnson serves as Vice President for State Fiscal Policy. You can follow him on twitter @NickCBPP.

Full bio and recent public appearances | Research archive at CBPP.org


Brownback Reiterates Faulty Claim to Justify Radical Tax Cuts

February 25, 2014 at 3:30 pm

Kansas Governor Sam Brownback said recently that his radical 2012 income tax cuts — among the largest that any state has ever enacted — generated over 15,000 small businesses in Kansas.  He’s made this claim before, such as to the New York Times last month.  It’s one of his top arguments that the tax cuts have worked.

But it’s misleading, at best.

First, while more than 15,000 new businesses were incorporated in Kansas in 2013, more than 16,000 other businesses were either dissolved by their owners or forfeited for failure to file an annual report and pay the annual fee.  Even adding in the 4,500 businesses that owners reinstated that year (by filing annual reports after letting their status lapse), the net growth in registered businesses was about 3,600 — smaller than in 2012, the year before the tax cuts took effect.

More importantly, proponents of the tax cuts said their goal was to create real jobs.  But, private sector job growth in Kansas since the tax cuts took effect ranks among the lowest of any state — 46th fastest as of the latest data.

Meanwhile, the tax cuts have led to a big drop in revenue for the state, deep cuts in services, and an overall weakening of the state’s economic prospects.

Florida’s Boost to K-12 Education Welcome, But a Gap Remains

December 9, 2013 at 10:41 am

In a letter to state school superintendents encouraging them to raise teacher pay, Florida Gov. Rick Scott boasted that the state’s budget this year includes “the most state funding for education ever,” and that Florida’s increase in per-student spending this year — $263 — ranked second among states for annual increases in our report on K-12 school spending.

That’s welcome news for a state that slashed spending on education and other public services as its revenues plummeted during and after the recession, including at the start of Gov. Scott’s administration.  But, the renewed investments haven’t been enough to recover fully from such steep cuts.  In fact, Florida’s per-student spending remains below its 2007-08 level, adjusting for inflation (see chart).

Meanwhile, the state’s school-age population has continued to grow; there are 11,000 more K-12 students in Florida this year than in 2007-08.

Florida isn’t alone in digging out of a school funding hole.  As our recent report shows, at least 34 states are providing less funding per student for the 2013-14 school year than they did before the recession, and where funding has risen — as in Florida — it has generally not fully offset cuts in past years.

Florida will need to continue to commit state funds to schools to make additional progress in reversing such deep cuts.  Federal aid to schools is declining, and local governments generally can’t make up for the deep cuts in state aid, since property tax revenues — the main source of local funding for schools — remain depressed by the housing bubble’s implosion, which is now fully accounted for in local property tax collections.

Missouri Lawmakers Wisely Push Back Against Plan to Shift, Cut Taxes

September 12, 2013 at 4:30 pm

A bipartisan group of Missouri legislators this week rejected a plan to slash income taxes for the wealthy and corporations, raise sales taxes largely on middle- and low-income consumers, and cut funding for education and other services.  Their vote sustained Gov. Jay Nixon’s veto of the plan, which originally passed the legislature in June.

Missouri thus joined Louisiana, Nebraska, and Oklahoma as states where high-profile tax-shifting plans, heavily promoted by anti-tax activists and organizations, failed to make it into law in 2013.  Those three states have — so far — rejected the approach to taxation promoted by the American Legislative Exchange Council (ALEC), which calls for lower taxes for the wealthy, higher taxes for the poor, and less funding overall for health care, K-12 schools, higher education, public safety, and the other services that state taxes pay for.

Such tax shifts are likely to prove exceedingly damaging.  Already, states like Kansas, North Carolina, and Ohio — all of which have embraced ALEC’s formula over the last two years — are cutting funding for schools, early education, and other investments in their states’ long-term ability to compete.  Nor is there good reason to think those tax cuts might help their state economies; both academic research and states’ own experiences over the last two decades suggest that tax cuts don’t create jobs.

Advocates of this state fiscal model will likely continue to press their claims.  Policymakers across the country should look to Missouri’s example when they face decisions on such misguided proposals.

Busting the Myths Around Swapping Sales Taxes for Income Taxes

September 5, 2013 at 2:54 pm

GovBeat, the Washington Post’s must-read new blog, earlier this week described the goal of North Carolina’s Senate Finance Committee Chairman Bob Rucho and House Speaker Thom Tillis to repeal the state income tax and enact a new, higher sales tax on both goods and services in 2015.  In explaining the plan, Rucho and Tillis repeated the three main myths that tax-cut proponents are using to justify swapping out state income taxes for sales taxes.

Let’s explode those myths, one by one.

Myth:  Replacing a state’s personal income tax with a sales tax would solve the problem of tax instability.

Reality:  A sales-for-income tax swap would reduce revenue without eliminating volatility. State tax volatility is a real problem, but much better, and more affordable, solutions exist.

Myth:  Repealing the income tax would result in lower taxes.

Reality:  Higher sales taxes mean higher taxes overall for middle-class and poor families. Rucho’s proposed tax swap would benefit only the wealthy.

Myth:  Repealing the income tax will boost state economic growth.

Reality:  States with the biggest income tax cuts in the 1990s grew fewer jobs in the next economic cycle than other states. Most careful economic studies show that income tax cuts are a lousy strategy for economic growth.

As states slowly emerge from the Great Recession, they can ill afford to change their tax systems based on such hollow myths.  That’s especially true in North Carolina, where lawmakers have already adopted policies that may hurt the state’s future prosperity.

North Carolina’s Tax Bill Has Ominous National Implications

July 17, 2013 at 3:58 pm

The radical tax bill that North Carolina lawmakers passed today—and that Governor Pat McCrory is expected to sign — has two dangerous implications for other states.

  • It redefines “tax reform” to include proposals that fail the fundamental tests of fairness and revenue adequacy.
  • It threatens a new tax-cut war among the states that, in the end, would benefit no state’s economy.

Let’s look at each of these points in turn.

Redefining “tax reform.” The bill eliminates or caps a few deductions or exemptions, some of which clearly deserved to be eliminated.  But it doesn’t merit the name “tax reform” that supporters have given it because it shifts tax burdens from the most well-off to the middle class and poor and because it slashes revenues at a time when state government is already strained for funds.

North Carolina’s bill gives enormous new tax breaks to the wealthiest taxpayers and most profitable corporations while raising taxes on many lower- and middle-income households.  The legislature’s own fiscal research agency says a family of four with income of $250,000 will get an income tax break of $2,434, while a family of four with income of $20,000 will get a tax cut of $3 — which will be more than offset by the state’s planned elimination of its Earned Income Tax Credit.

In fact, because the bill also raises sales taxes, the independent North Carolina Budget & Tax Center estimates the net result will be higher taxes for the 80 percent of North Carolina families with incomes below $84,000.

Meanwhile, the plan will cost the state over $600 million per year.  North Carolina doesn’t have anywhere near large enough a budget surplus to pay for that, so Governor McCrory initially recommended that tax reform be revenue-neutral.  But he later abandoned that idea, and both houses of the legislature have passed budgets that would cut K-12 staff, raise college tuition, cut funding for affordable housing, and make other cutbacks, in part to pay for the new tax bill.

Threatening a new tax-cut war among the states. North Carolina’s economy outperformed the nation’s last year, but its current unemployment rate of 8.5 percent is among the nation’s highest.  State leaders argue that cutting taxes (particularly income taxes) will provide a competitive edge.  There are two problems with this argument, however.

  • First, it’s not likely to work.  Numerous academic studies haven’t found a consistent connection between tax cuts and state economic growth.  Recent history also shows that deep cuts in income taxes don’t fuel growth:  the states that cut taxes the most in the 1990s grew more slowly over the next economic cycle than other states.

    The frequent claim that rich people will flee higher-tax states for lower-tax ones turns out to be a
    myth.
  • Second, despite this lack of empirical support for the tax-cut strategy, some policymakers in other states undoubtedly will cite North Carolina to push for tax cuts of their own.

    Several national organizations, including the
    American Legislative Exchange Council and Americans for Prosperity, have made large state-level tax cuts for the wealthy a major part of their agenda.  Already, Virginia gubernatorial candidate Ken Cuccinelli has proposed deep cuts in personal and corporate income tax rates.

    As neighboring states seek to mimic North Carolina, any advantage the state might have hoped to gain over the others will disappear.  When every state enacts the same tax break, all they’ve done is ratchet down their ability to pay for good schools, roads, police and fire protection, and all the other critical services that make them places where people and businesses want to stay for the long haul.