Tax Study Released Today

A new study on the ramifications of lowering the state income tax was released today at a statehouse news conference. Bernie Koch, executive director of KEPC, and study author Dr. John Wong presented findings at the statehouse today. The study finds that, for every 1 job created, 1.63 are lost due to study released today finds that a lowering of the income tax would result in a loss of 1.63 jobs due to a reduction in overall state spending. The study was commissioned by the Kansas Economic Progress Council.

The press release is available here, and the ful text of the study is available here.

Dr. Wong’s slide deck is available here.

KEPC UPDATE: KS Economy will continue to lag

Consensus revenue group:  Kansas economy will continue to lag

Personal income in Kansas and the state’s economy will continue to lag behind the national average, according to the more detailed memo on revenue estimates released last week by the consensus revenue estimating group.

On November 10, the committee came up with numbers that must be used by the legislature and governor to build the budget.  Their findings indicate the state must cut $280.1 million from the current budget and delete $434.4 million in spending for the FY 2016 budget (or find new revenue to fill the gaps).

However, the group’s reasoning was not known until the “long form” revenue memo was released last week.  That’s where the personal income and economic growth predictions were revealed.

Here’s what they predict for economic growth (gross domestic product):

________        U.S.                 Kansas

2014                3.7%                3.6%

2015                4.9%                4.3%

2016                5.1%                4.6%

2017                5.1%                4.6%

The consensus revenue estimating committee said that although the national economy is expected to expand, “a number of growing risks and uncertainties could alter that outlook.  Volatility in energy prices, rising global tensions and recent announcements by key employers in this state are just a few of the variables that have warranted the attention of revenue estimators…”

Here’s what they predict for personal income growth:

________        U.S.                 Kansas

2014                4.0%                3.8%

2015                4.9%                4.2%

2016                5.1%                4.4%

2017                5.1%                4.4%

 

Agriculture

On the Kansas agriculture economy, the group said, “net farm income from grain is expected to decline during 2015 and 2016 but be offset in part by some growth in income from livestock production.  However, some livestock producers are continuing to rebuild herds after the disastrous drought conditions in 2011-13 forced culling.  Kansas agricultural land values are growing at a healthy pace.”

Oil and gas

The group noted that the price of oil has decreased significantly recently.  They adjusted their forcast of the price of a barrel of Kansas crude by $5, to $80 per barrel.  They think the price will drop further in FY 2016 to $72.  That will impact severance tax collections.

The consensus revenue estimating process is now 40 years old and the memo contains some interesting historic information about the group’s accuracy.  Here are some of the intriguing facts garnered from comparing the group’s original estimates to final actual state receipts:

  • For FY 2014, the group was off $333.3 million, or 5.6%, making it the worst year on record for not getting the estimate correct. That’s probably due to the complexity of estimating the affect of the 2012 and 2013 income tax cuts.
  • The previous worst year was 4.9% in 2002, likely caused by the economic downturn following the 9/11 terrorist attacks, something no one could have predicted.
  • The year that produced the biggest unexpected windfall was 1988, when revenues were 4.0% above the original year’s estimate. That followed federal tax changes that resulted in a much-debated windfall in state income taxes, leading to personal income tax cuts under Governor Bill Graves.
  • In 32 of the 40 years, the consensus revenue estimating group was within 2% of its predictions.
  • In 18 of the 40 years, the group was within 1% of its predictions.

You can read the full memo here.

 

 

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