A $21 million shortfall in September tax collections has renewed the debate on Gov. Sam Brownback’s economic policies heading into the last month of the 2014 campaign.
Over the last five months, tax receipts have fallen more than $360 million short of official projections, driven largely by the 26 percent reduction in income tax rates championed by Brownback and passed by the Republican-controlled Legislature in 2012 and 2013.
The continuing shortfalls are forcing the state to spend through its reserves, a strategy that analysts in the nonpartisan Kansas Legislative Research Department say could put the state nearly $240 million in the red by July of 2016.
Paul Davis, Brownback’s Democratic challenger, used the September revenue report to launch another attack on what he calls the governor’s “failed policies.”
“The governor’s economic experiment isn’t working, and it’s not going to work,” Davis said in a campaign news release. “It is damaging our schools, hurting our economy and putting our children’s future in jeopardy.”
Brownback and others in the administration insist that the drop in revenue is temporary and that the tax cuts will transform the Kansas economy if given enough time to work.
Shawn Sullivan, director of the governor’s budget office, said small business owners whose taxes were eliminated by the cuts are telling him they eventually will use the money they’re saving to create new jobs.
“What they tell me is, ‘These tax cuts and these policy changes take time (to work),’” Sullivan said. “These tax policy changes aren’t like you flip a switch and you have 100,000 new jobs. It’s trying to set the environment right for small businesses that employ the majority of Kansans.”
Kansas is doing well compared to neighboring states when it comes to job growth in the small business sector, Sullivan said.
Revenue Secretary Nick Jordan points to the $21.5 million collected above the September estimate in corporate income taxes as an indication of the state’s improving business climate. But critics say the corporate tax windfall was more than offset by a $42.4 shortfall in individual income tax receipts.
Broader measures reported by the U.S. Bureau of Labor Statistics still show the state lagging the region and nation in job growth.
To head off possible budget cuts, Sullivan said the administration is implementing “efficiencies” that he estimates can save $101 million by the end of the 2015 budget year.
Eventually, Sullivan said, he expects that taxes paid by Kansans hired to fill the new jobs created by the governor’s tax policies will restore state revenues to pre-cut levels.
But Duane Goossen, a former budget director who worked for both Republican and Democratic governors, said that is wishful thinking.
“It seems almost impossible to think given our current tax structure that increased economic activity could replace the losses that have occurred,” Goossen said.
Neither the governor nor anyone in his administration has been able to show precisely how the job growth they’re hoping for will restore the lost revenue, Goossen said.
“In fact, the opposite is true,” he said. “The Kansas Legislative Research Department has been predicting and forecasting all along that with these tax changes revenue would drop dramatically, and it has.”
