Report: Missouri shouldn't follow Kansas' tax-cuts example

Missouri’s Senate needs to take one final vote — probably next week — to send a tax-cuts plan to the House, after giving the idea first-round approval Wednesday night.

But Gov. Jay Nixon has suggested the plan faces a potential veto unless it includes reforms to expensive tax credits programs — which the Senate-endorsed version does not.

And a national organization warns Missouri lawmakers — as well as lawmakers in other states considering tax cuts — that Kansas’ recent experience suggests those cuts aren’t a good idea.

The Kansas cuts went into effect Jan. 1 last year, with income taxes reduced by about a fourth from their previous levels, and some business-related taxes eliminated, including the income tax charges on business profits “passed through” to business owners.

“We looked closely at what’s happened in Kansas since the tax cuts took effect — what we found is that Kansas is far from a model that other states should emulate,” Michael Leachman said Thursday morning during a telephone conference call with reporters.

He co-authored a Center on Budget and Policy Priorities report released Thursday called “Lessons for Other States from Kansas’ Massive Tax Cuts.”

“The best way I can think of to describe it is, the tax cuts have landed with a thud,” Leachman said. “In the fourth quarter of 2013, tax revenue was up in 38 states compared to a year earlier.

“Kansas, though, is headed in the other direction — tax revenue was down last year by 9 percent.”

While the 2012 Kansas law cut tax rates about 25 percent in one year, the Missouri bill sponsored by Sen. Will Kraus, R-Lee’s Summit, would cut taxes by just one-half percent over a five-year period that doesn’t begin until 2017, and each step of the phase-in can’t occur unless state revenues grew by at least $150 million over their high mark in one of the previous three years.

“It’s not as ambitious as I would like,” Senate President Pro Tem Tom Dempsey, R-St. Charles, told reporters at the end of Thursday’s Senate session. “(It is) a small, incremental step forward.”

When told of Leachman’s report for the Washington, D.C.,-based center, Dempsey noted: “We never put forward what Kansas put forward. Our bill has never been equal in size — even close to equal in size — to what Kansas passed.”

Although disappointed the Missouri proposal isn’t bigger, Dempsey noted last year’s more ambitious plan “was vetoed by the governor and we just couldn’t come up with the votes to override.”

Still, he said, the plan needing one more Senate vote “wouldn’t, necessarily, create the kind of change that would really move our state forward in terms of a competitive environment with our neighbors — but we’re moving in the right direction.”

Leachman said his study doesn’t support that.

“Some tax-cut proponents even claim that tax cuts will pay for themselves — that’s a claim that has no backing whatsoever in the serious economic literature,” Leachman said. “The tax cuts have not boosted Kansas’ economy (and) since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole.

“(That’s) very similar to 2012, the year before the tax cuts took effect, (when) Kansas’ job growth modestly lagged U.S. job growth.”

Leachman said there’s no reason to believe things will get better in Kansas in future years.

Amy Blouin of the St. Louis-based Missouri Budget Project also joined reporters on the conference call.

While Kraus told colleagues the loss to Missouri taxpayers eventually could be around $500 million — but eventually will improve the state’s economy — Blouin said: “Our estimate is that (the bill) will cost Missouri more than $700 million per year, in general revenue, when it’s fully phased in.”

Instead of cutting taxes, she said, Missouri should work harder to restore funding to education and other services that have been cut over the past few years because of the recession-fueled, slow economy.

Blouin said taxpayers “deserve better than empty promises.”

But Dempsey and other supporters also point to tax-cutting successes in other states, like Oklahoma and Tennessee, as a reason to pursue a tax-cutting plan.

Leachman said the majority of economic studies “over 40 years” and involving a number of states show similar results to the recent tax cuts — little economic change.

“The results overwhelmingly find that state-to-state differences in tax levels, including the differences in personal income taxes, have a negligible effect on relative rates of state economic growth,” he said.

However, Dempsey said: “I think there are reports that indicate just the opposite.

“I don’t know what you’re looking at — but the ones that I see indicate that states that reduce taxes, and allow people to keep more of their money — actually, their GDP (gross domestic product) grows at a greater rate than those states that have higher taxes.”

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