Kansas’ Projections Show Tax Cuts Aren’t Paying Off as Predicted

May 14, 2014 at 10:09 am

When Kansas enacted a major tax cut in 2012, many state lawmakers predicted it would spur economic growth.  Instead, economic performance in Kansas has been unimpressive, and updated projections from its Division of the Budget offer no reason to expect that the state’s economy is about to boom.  Personal income in Kansas will grow more slowly than U.S. personal income in 2014 and 2015, according to the new forecast (see chart).

The state’s budget office also projects that gross domestic product (GDP) in Kansas will lag the nationwide rate in 2014 and 2015.  That would mark a downward departure for the Kansas economy, which over the last two decades has generally kept pace with the national economy.

There’s no evidence to believe that the tax cuts will improve the economy in later years, either.  The vast majority of research finds that differences in interstate income tax rates have little or no impact on state economic growth.  For example, when six states made large tax cuts in the 1990s, their income and employment grew more slowly than the rest of the country.

The new forecast wasn’t the only bad news that Kansas received in the past few weeks.  Moody’s Investors Services downgraded Kansas’ credit, citing the revenue loss from the tax cuts as an important reason.  A lower credit rating could mean the state will pay higher interest rates in order to borrow money for public spending.  Moody’s also downgraded the credit of both the University of Kansas and Emporia State University, two of the state’s six public universities.

The negative effects of Kansas’ tax cuts are mounting:  lower state revenues, serious cuts to services like education, and now lower growth forecasts and a downgraded credit rating.  These cuts aren’t setting Kansas up for economic success.

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3 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    “The vast majority of research finds that differences in interstate income tax rates have little or no impact on state economic growth.”
    Really? So, if my state (North Carolina) decided to tax income at 5%, vs 50%, there would be no impact?
    Are you also assuming that an income tax change would have an immediate effect, as opposed to a long term effect?

    • Chris Mai #
      2

      Most major studies find that ACTUAL interstate differences in tax levels do not affect economic growth, including over the long term. For more information, please see this paper: http://www.cbpp.org/cms/?fa=view&id=3936

      • 3

        Having looked at the 8 “major studies,” would your contention be that you should not reduce individual income taxes, but you should cut corporate taxes, to yield growth?



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