He has been extolling the wonders of low taxes and high growth since taking office in 2011. His 2012 tax cut was the most ambitious by any state. So his re-election battle next week will be a referendum on Brownbackonomics—and closely watched by a whole lot of Americans with strong views on tax policy.Mr Brownback should be strolling to a second term; Kansas is so red it hasn’t voted for a Democratic presidential candidate since 1964. Instead, polls show him tied with Paul Davis, the Democratic minority leader in the state House, largely because of the fallout from his tax plan.Mr Brownback set out to revitalise a state in relative decline, losing people and jobs to Texas. His original plan was sound: to cut marginal rates (which discourage work and investment) and close loopholes. The top rate has dropped from 6.45% to 4.9% and will eventually fall to 3.9%.
But the execution was fumbled. The legislature cut rates without, at first, closing many loopholes. The plan didn’t touch the corporate tax rate, since many big firms avoid taxes by wringing incentives from the state. Instead, it eliminated taxes on “pass through” business entities such as sole proprietorships. The self-employed and corporations can slash their tax bills merely by changing how they report their income. Revenue took a huge and unexpected hit: $338m, or 6% below plan in the last fiscal year. Mr Brownback blamed changes to federal tax laws, but credit-raters saw long-term harm and dinged the state’s rating. Standard & Poor’s called its budget “structurally unbalanced”.
Mr Brownback’s boldness has inspired tax-cutters elsewhere (see table). Last year Ohio cut rates across the board by 10% to be phased in by 2015, at a cost of more than $1 billion ayear. Indiana will lower its top rate from 3.4% to 3.23% by 2017; Oklahoma’s will fall from 5.25% to 5% in 2015, and to 4.85% if revenues permit. In all three, though, Republican legislators refused to cut as deeply or as quickly as their governors wanted. The governors of Louisiana and Nebraska were largely stymied. Next door to Kansas, Missouri’s Democratic governor vetoed a tax cut passed by the Republican legislature last year. He did so again this year, pointing to Kansas’s experience, but the legislature overrode the veto with a more modest drop that takes effect in 2017.
Kansas’s hoped-for economic boom remains elusive, however. Since the cuts took effect at the start of 2013, unemployment has fallen slightly more than in next-door Missouri, which competes for jobs with Kansas, but payrolls have risen less, and indeed have lagged all nearby states save Nebraska (see chart). More people left Kansas than moved there in 2013. New business openings rose 2% in 2013 but that was still fewer than were opened in 2011, reckons Dane Stangler of the Kauffman Foundation, a think-tank.
This says little about the tax cuts’ merits; larger forces drive state economies. California and Illinois have raised taxes sharply in recent years; job growth has boomed in California but stagnated in Illinois. Kansas’s aerospace industry has seen big plant closures and layoffs. Mr Brownback pleads for patience: “Tax policy takes time.” But voters may not be patient.
Kansas has three factions: Democrats, moderate Republicans, and conservative Republicans. Moderate Republicans often vote with Democrats; many opposed the tax cuts. So in 2012 Mr Brownback and his allies engineered the replacement of several moderates with conservatives. Many moderates now back Mr Davis.
Tax cuts are also widely blamed for the failure to restore education funds cut during the recession. Excluding pension and capital costs, Kansas spent $100m less on schools this year than in 2009, says the Kansas City Star . In April lawmakers voted to restore some education funds to comply with a state Supreme Court order, but at the same time weakened teachers’ job security and gave tax breaks for private schools. That angered teachers, who have become Mr Brownback’s most vocal adversaries. In a district south of Kansas City where two small schools closed, Christy Levings, a former teacher, took on a 22-year incumbent Republican because “I just couldn’t sit and let him run unopposed.”
The affluent residents of Mission Hills, an elegant Kansas City suburb, are big beneficiaries of the tax cut. But Barbara Bollier, the district’s moderate Republican representative, opposed it, saying most of her constituents worry more about schools. Out canvassing for votes, she encounters a couple who voted for Mr Brownback in 2010 but are backing Mr Davis now. “At the time, I didn’t think he’d be as radical as he’s become,” says Thomas Simmons, a retired doctor. His wife, Wanda, frets that new families are avoiding the public schools because their quality has slipped.
Still, across the street Ms Bollier gets a reminder of Kansas’s conservatism from a couple backing Mr Brownback for his opposition to abortion and for his tax cuts. “Government is taking too big a role in everything and the only way to get them out is to not give them anything to spend,” says Mack Colt, a banker. For all their unhappiness, it is not clear that Kansans want their taxes to go back up. Mr Davis has promised to block scheduled tax rate reductions, but hasn’t said whether those already in place would be rolled back.
The original article is linked here.
Greg Ip
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