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: WSU study questions cuts, rural roads more dangerous

In this issue …

  • Wichita State study questions cutting taxes to grow the economy
  • Kansas rural roads more dangerous

 

Wichita State study questions cutting taxes to grow the economy

A detailed scientific study by two Wichita State economists questions cutting taxes as a way to boost state economies.  The research was published nationally in the Journal of Public Analysis and Management by two faculty members of the Kansas Public Finance Center at the Hugo Wall School of Public Affairs.

The study states, “Given our findings, the wisdom of cutting taxes as a way to boost a state economy must be seriously reexamined.  While cutting taxes may produce a short-term boost in the economy, if those cuts are accompanied by cuts in spending (especially operational spending), the short-run gains are going to be offset and perhaps even exceeded by the drag on growth created by lower spending.”

The study’s authors are Arwiphawee Srithongrung, Associate Professor at the Hugo Wall School; and Kenneth A. Kriz, Regents Distinguished Professor of Public Finance.

The study also questions the assertion by many that public spending “crowds out productive private economic activity.”

“Our results strongly support a view that spending on local public goods is complementary with private economic activity.  Taking the viewpoint of a regional economic model, public spending ripples through the economy in the form of induced spending in the private sector.  The real question may come down to whether public spending provides strong multiplier effects (as suggested by our results) or not.”

The study used something called panel vector autoregression (PVAR) to examine the effects of taxes and expenditures on state income growth.  As far as anyone knows, it has not ever been used to study the economic effects of taxes and spending.

The researchers write that taxes do have a negative effect on economic growth, but only in the short term. Public capital spending (such as on highways) has a positive effect on economic growth in both the short and intermediate term.  Operational expenditures by government also show a positive effect on economic growth over the short and long term.

The ramifications for the Kansas income tax cuts are not lost on the authors.  They quote Governor Sam Brownback in their introduction from comments made when he signed the 2012 income tax cuts into law.  In those comments, Brownback talked about how the legislation would result in “tens of thousands of new jobs.”

If the study’s conclusions are correct, it could explain what’s happening with the current Kansas economy: income tax cuts have resulted in spending cuts that are causing a drag on the economy.

 

Kansas rural roads more dangerous

A new study by The Road Information Program (TRIP) says Kansas rural roads have high rates of deficiencies and traffic fatalities.

The study ranks Kansas 6th in the country in percent of rural roads in poor condition (30 percent).

The report ranks Kansas 16th highest among the state in traffic fatalities on rural roads.  In 2012, Kansas had 2.26 deaths for every 100 million vehicle miles of travel.  That’s three times higher than the fatality rate on all other roads in Kansas.

Michelle Butler, Executive Director of Economic Lifelines, the state’s leading transportation advocacy group reacted to the study.

“This report illustrates first-hand the challenges we face in meeting our states unique needs.  We must continue to face these challenges head on to ensure the safety and economic vitality of our citizens”

Here’s a link to the full report.

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KEPC UPDATE: Ending balance shortfall, tax bills TMI, changes to PEAK

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KEPC SPECIAL REPORT: Kansas own economic benchmarks are not being met

Growth_report-graphic

Supporters of the 2012 and 2013 Kansas income tax cuts are saying that the cuts are working to grow the Kansas economy. However, the Brownback Administration’s own benchmarks are indicating just the opposite in an obscure and little-noticed March 2014 report from the Governor’s Council of Economic Advisors. The March 2014 report, “Indicators of the […]

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