KANSAS WILD TAX RIDE Where We Are Now and How We Got Here After 6-Year Tax Policy Roller Coaster

Transcription

1 KANSAS WILD TAX RIDE Where We Are Now and How We Got Here After 6-Year Tax Policy Roller Coaster University of Kansas October 25, 2018 Chris W. Courtwright Principal Economist

2 3 Legs of State/Local Finance Stool (Percent of State and Local Taxes by Source for Selected Years) FY 1992 inc/priv sales/use prop/veh FY 1998 FY % 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

3 Great Recession Likely Triggered Change in Thinking About Tax Policy

4 : Many Tax Policy Changes 2012: Major tax cuts passed with no Pay-Fors 2013: Pay-Fors re-emerge amid new long-term tax cuts 2014: Receipts fall well below forecast, set table for 2 nd round of back-filling tax increases in : Governor s initial $211 million tax hike plan found inadequate as receipts continue to slide during winter months 2015: Record-Long session finally enacts $384 million tax hike package for FY Was it enough?

5 Major Tax Policy Changes Individual Income Tax Brackets, Married Filing Jointly $0-30k 3.50% 2.70% 2.60% Glide- $30k-60k 6.25% 4.60% 4.60% Path $60k+ 6.45% 4.60% 4.60% Formula Note: All non-wage business income exempt since Sales Tax increase from 5.70% to 6.15% to 6.50% Cigarette Tax increase from $0.79 to $1.29/pack Food sales tax rebate credits made non-refundable Renters removed from Homestead Prop Tax Circuit Breaker Program

6 The Tax Policy Timeline 2016: New faces win in Aug, Nov amid growing calls for tax reform; some saying fiscal crisis had become ongoing and institutionalized. 2017: Gov proposes 3 rd round of more modest back-filling tax increases. Legislature with 2/3rds majority overrides his veto and repeals much of 2012 tax cut, restoring 3 brackets and repealing nonwage business income exemption and glide-path formula. 2018: No major tax changes. New court-ordered K-12 money provided. But other major spending issues remain, including highways, higher ed, KPERS, public safety/prisons.

7 2017 SB 30: Income Tax Reform Individual Income Tax Brackets, Married Filing Jointly Tax Year Old Law New Law New Law Taxable Income $0-$30k 3.50% 2.70% 2.90% 3.10% $30k-60k 6.25% 4.60% 4.90% 5.25% $60k+ 6.45% 4.60% 5.20% 5.70% Enacted over veto. Three brackets restored. Non-wage exemption repealed. Glide-path formula repealed. Itemized deductions for medical expenses, mortgage interest and property taxes paid restored over time. Child and dependent care tax credit restored.

8 What Do Previous 6 Years Tell Us? 2012 tax cut proponents often point to rural recession as a major reason cuts seemed to not stimulate KS economy, generate new receipts. Others suggest the state should have cut expenditures more dramatically to achieve better ongoing fiscal balance tax cut opponents say non-wage exemption too broad, had no strings attached. Some also point to multiple alternative paths through public policy forest, including fewer budget cuts and even Medicaid expansion.

9 Raiding the Bank of KDOT What are long-term implications? Hundreds of millions annually in fund sweeps from KDOT s State Highway Fund money previously earmarked for the Comprehensive Transportation Program. Some history: Widespread belief was that early 1990s recession was not as bad in Kansas as nation as a whole because of all the construction and spending going on as a result of 1989 highway program.

10 ARRA: Federal 2009 Legislation This Keynesian notion (government spending as fiscal stimulus) was important component in the debate at the federal level over ARRA and how to best resuscitate the economy shovel-ready public sector spending versus tax cuts.

11 What About Medicaid Expansion? Another policy choice (not expanding Medicaid) associated with maintaining a more austere public sector in Kansas Opponents of Medicaid expansion argue that federal commitment to maintaining the lion s share of the cost likely could not be sustained (leaving Kansas holding the bag) Proponents argue that the state has already lost out on many hundreds of millions of federal money that could have helped prevent closure of facilities, especially in rural areas

12 Counterfactual History/Going Forward Counterfactual History Last 6 Yrs Best Path Forward - Who Decides?

13 Evaluation: Who and How? Complexities, Multiple Questions/Issues to Study Partisan Groups with Hourly Answers on Twitter Feed? Universities hold long-term institutional knowledge that is badly needed to help guide economic development, given that the political process by definition has a shorter attention span and focuses much more heavily on the short term. - Dr. Donna Ginther, 2012 KEPC, 10/18/2012

14 US Supreme Court on Tax Breaks Both tax exemptions and tax-deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income. Regan v. Taxation With Representation of Washington, 461 U.S. 540 (1983) (Written by Former Justice Rehnquist for a Unanimous Court) Begs the Question: Is More Accountability, Transparency in Tax Code Needed for Legitimate Cost-Benefit Analyses?

15 Oct 18: High Level of Uncertainty FY 18 finished $300 million above final estimate (mostly individual income tax). States win a long sought-after victory in South Dakota v Wayfair. But how much realistically can be collected and when? We have averaged a national recession every 5 years. It has now been 9 What about trade war/tariffs? CRE Group meets Friday, November 9 Yes, it is an election year