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


Improving State Budget Policies

December 4, 2014 at 2:26 pm

States’ choices about investing in schools, health care, child care, and other services can either help create opportunity and prosperity for people or hold them back.  This short video explains how the State Priorities Partnership, a national network of 41 independent state policy organizations, works to:

  • strengthen policies that affect low- and moderate-income families, such as health care, economic security, education, and child care;
  • make state tax systems fairer and more effective in raising needed resources; and
  • help other nonprofits and the general public participate in debates about budget priorities.

Launched in 1993 in 12 states, the network — which local and national foundations support — has grown steadily; its 41 states include four-fifths of the U.S. population.  CBPP coordinates the network.

What Does Kansas’ Botched Tax-Cut Experiment Portend for Other States?

June 12, 2014 at 3:06 pm

The budgetary disaster emerging from Kansas’ radical tax-cutting experiment is making pro-tax-cut elected officials in other states uneasy.  The Wall Street Journal reports this week that leaders in Oklahoma, Nebraska, and other states are expressing concern about the Kansas results and distancing themselves — at least rhetorically — from the Kansas failures.  Despite their rhetorical backtracking, however, the tax cuts that policymakers in Ohio, Oklahoma, North Carolina, Wisconsin, and other states are pursuing aren’t all that different from the Kansas plan.  As we’ve explained, these states should consider Kansas a cautionary tale.

Kansas in 2012 enacted perhaps the nation’s largest state tax cut ever.  As we wrote earlier this year, and as the Journal and others have subsequently reported, state revenues have plummeted, employment growth has continued to lag the national average, and the state’s credit rating has been downgraded.

The Kansas tax cuts were followed, in 2013, by big tax cuts in Indiana, Ohio, North Carolina, and Wisconsin.  While none were as big as Kansas’, they generally included many of the same ingredients:  big cuts in tax rates for the highest-income households; very small tax cuts, or even tax increases, for lower-income working families; unjustified new breaks for businesses; and multi-year phase-ins, so that the full costs of the tax cuts could be hidden in out-year budgets.

Take, for example, perhaps the most foolhardy provision in the Kansas tax package:  a complete tax exemption for all income from any business that’s considered a “pass-through entity” — a broad category that includes many law firms, accountants, medical practices, self-employed consultants, and others.  Even the conservative Tax Foundation has flagged this provision as poor policy.  Despite its abject failure to stimulate small-business development, Ohio and Missouri both have enacted versions of the same faulty provision.

Kansas Governor Sam Brownback once promised that the tax plan would provide a “shot of adrenaline” to his state’s economy.  He’s now switched medical metaphors, likening the tax cut to surgery from which it will take his state a long time to heal.  And to be sure, Kansas’ economy may yet recover. For the moment, however, it’s no surprise that elected officials in other states want to pretend their strategies are very different.  Kansas’ experience suggests they might be better off avoiding the knife altogether.

In Illinois, a Chance to Fix a Constitutional Flaw

April 23, 2014 at 1:04 pm

Illinois’ constitution has a requirement that is quite unusual among states:  the state must have a single-rate income tax, meaning that middle-income taxpayers pay income tax at the same rate as the state’s wealthiest.  This provision has been a fiscal and economic failure.  Now lawmakers are considering a fix that would benefit the state’s middle-income taxpayers and economy for the long term.

When Illinois enacted the single-rate rule in 1970, the income gap between the wealthy and everyone else nationwide had been falling for several decades.  Since the 1970s, however, the top 5 percent of Illinoisans’ incomes have risen 123 percent — six-and-a-half times the rate for middle-income households (see chart).

In other words, most of the income benefits of the state’s economic growth since 1970 have accrued to the wealthy, and Illinois today has the nation’s ninth-highest level of income inequality.

The single-rate income tax is bad enough for middle-income households.  Other major revenue options, like sales or property tax increases, are even tougher on low- and middle-income families.  Indeed, accounting for all forms of state and local taxation, the Institute on Taxation and Economic Policy reports that Illinois’ tax structure is the nation’s fourth most lopsided in favor of those with high incomes, with the top 1 percent of taxpayers (with average income of $1.5 million) paying less than half as much of their income in taxes than the 80 percent with incomes below $93,000.

In part because of its limited revenue options, Illinois for many years did not raise enough tax dollars to cover its costs.  The state accrued nearly $10 billion in unpaid bills to doctors, child care centers, and other service providers, and it fell far behind on its pension payments. A temporary income tax increase enacted in 2011 has helped the state to slash the backlog of unpaid bills, but the state’s fiscal challenges remain large.

Nor has the flat-rate requirement helped Illinois’ economy.  Unemployment in Illinois remains well above the national average, and much higher than neighbors like Minnesota and Missouri that have multi-rate taxes.  (In fact, Minnesota last year raised taxes on its highest-income residents, with no economic harm, contrary to opponents’ predictions.)  A plethora of academic studies, as well as states’ direct experience, show that personal income tax rates have essentially no relationship to economic growth.

In the coming days, Illinois’ legislature will consider whether to give voters the option of fixing the flawed single-rate mandate.  A proposed constitutional amendment would enable Illinois to impose different rates on different levels of income, an option that all but a handful of other states already have.  This change could allow the state to fully pay its backlog of bills; better fund schools, parks, and roads; or meet other needs without imposing the greatest burden on middle-income Illinoisans.

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.