Thursday, December 18, 2014

HAWVER: Tax gambit still might pay off

By MARTIN HAWVER, At the Rail | 11/11/2013

Nobody’s talking very loudly about it, but if you squint just right, we actually might be seeing the initial sprouts of what Gov. Sam Brownback believes will be a surge in economic activity despite the re-engineering of his tax cut idea by the Kansas Legislature.

Remember two years ago when Brownback wanted big income tax cuts, and wanted to keep the state alive by cutting back on deductions and exemptions? The Legislature liked the tax cuts but didn’t like most of the “pay-fors” Brownback proposed.

Nobody’s talking very loudly about it, but if you squint just right, we actually might be seeing the initial sprouts of what Gov. Sam Brownback believes will be a surge in economic activity despite the re-engineering of his tax cut idea by the Kansas Legislature.

Remember two years ago when Brownback wanted big income tax cuts, and wanted to keep the state alive by cutting back on deductions and exemptions? The Legislature liked the tax cuts but didn’t like most of the “pay-fors” Brownback proposed.

Well, it didn’t turn out the way the governor hoped, but projections from the Consensus Revenue Estimating Group just might have pumped a little oxygen to his hopes of what his tax cuts would bring. Maybe.

The two bright spots among the rows of figures that Brownback hopes will sprout are projections of individual income tax receipts growing by just 1 percent — but growing — in the fiscal year that starts next July 1. That’s compared to this fiscal year (the one we’re five months into) that projects individual income taxes will drop by 14.7 percent because of the tax cuts.

It’s not big, but it’s possible a year from now that 1 percent growth might just rise.

The second bright spot is in retail sales and compensating use taxes. Compensating use? Think of sales taxes you pay on some, but not all, of those Internet purchases you make.

The numbers: Sales tax receipts are up 2.9 percent next year, and compensating use taxes are up 3.8 percent that year. Not a big deal, but it presumes that Kansans are going to have more money, because of income tax cuts, to spend on things that they pay sales taxes on. It’s a glimmer of light, frankly, one very few were looking for.

A lot of Kansans believe this cut taxes/increase prosperity gambit just won’t work. There’s a fair chance they are right. But there also is this glimmer of light for the governor.

The immediate problem is how long the state can hold its breath to see whether this Brownback plan will work. The experiment could be cut short by the Kansas Supreme Court ordering hundreds of millions of dollars for increased funding of public schools, or the Legislature further cutting higher education budgets, with Kansas graduates leaving the state to make their livings and spend their money somewhere else.

This coming legislative session, when nobody’s going to be talking about tax increases in an election year for the Kansas House and the governor, provides a year to see how this tax plan works, because there is — barring a massive spending order from the Supreme Court — enough money for the state to wait another year for relatively solid evidence that the tax plan does or doesn’t work.

There’s enough money in the projected State General Fund balances to skate by for at least a couple years of conservative spending. That ending balance probably defines how long we can expect the state to hold its breath.

So, next year, we might find out if this tax plan works.

Take a gulp.

Martin Hawver is publisher of Hawver’s Capitol Report. Visit his Web site at www.hawvernews.com

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