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.

TABOR: Taxpayer Bill of Rights

TABOR is a state constitutional amendment promoted to regulate growth in state and local budgets under a highly restrictive formula.  The idea is used to shrink state and local budgets over time by cutting taxes when there is a surplus and reducing the budget when there are deficits.  TABOR requires voters to approve all increases in either taxes or state debt, while limiting growth in state revenue.  Some versions of the amendment also impose separate revenue limits on school districts and local governments.

HISTORY OF TABOR:
The TABOR amendment was passed in 1992, making Colorado the only state in the nation to experience TABOR.  The effects of the amendment have taken nearly a decade to appear because spending limits typically rise at a rate only modestly lower than the cost of providing services.  But as the state of Colorado has learned, the difference grows and compounds significantly over the years.  Several cities and counties throughout Colorado have voted themselves out from under the limitations of TABOR.

  • In 1991-92, Colorado ranked 35th in state and local spending for K-12 as a share of personal income.  In 2000-01, the state fell to the 49th position.
  • In 1991-92, Colorado ranked 30th when comparing the average salary of teachers to annual earnings in the private sector.  In 2001-02, Colorado fell to 50th.
  • In 1991-92, Colorado ranked 35th in state spending for higher education as a share of personal income.  In 2003-04, they ranked 48th in the nation.
  • The appropriations received by the University of Colorado in FY 2004 were roughly the same in FY 1995.  However, the University has an estimated 4,927 additional students.
  • In 1992, Colorado ranked 23rd in adequacy of pre-natal care.  In 2002, the state ranked 48th. (1)

On November 1, 2005, Colorado reviewed the effects of TABOR and a majority of citizens voted to stop TABOR and retain state revenues.  This requires taxpayers to give up $3.7 billion in tax refunds over the next five years.  The business community was so alarmed that it raised a staggering $5.5M to support the campaign for the 5 year moratorium.

TABOR has hurt the Colorado economy and business leaders don’t like what they’ve witnessed.  According to Deloitte & Touche/Fantus Consulting, a good “business climate” depends as much or more on the quality of public services as it does on the state’s tax level.  The business environment in Colorado is quickly decaying as the state’s net worth, representing the publicly owned capital stock that provides the foundation for economic activity, is unparalleled. 

KANSAS AND TABOR:
The rationale for a TABOR amendment in Kansas is that it will control state expenditures on education, social services, roads and bridges, prisons, insurance, etc.  However, the experience of our neighboring state shows that expenditures on these key services will be dramatically reduced or eliminated all together under TABOR.

Why is TABOR so dangerous for our State’s Constitution?  TABOR uses a restrictive formula based on population growth plus inflation rate to set spending annually.  The amendment also becomes permanent in the state constitution, limiting flexibility almost completely and making removal from the constitution extremely difficult.  Additionally, Federal mandates and unexpected costs cannot be met without squeezing existing programs.

Unintended consequences of TABOR

  1. Burden is shifted to the local level, increasing property and excise taxes.
  2. Increases in fees for licenses, new homes and developments, permits, tolls, etc.
  3. Inefficiencies (i.e. deferred maintenance on buildings and roads; outdated technologies etc.)
  4. Loss of federal money(1)

If Kansas would have adopted a TABOR amendment at the same time as Colorado, the landscape of our state would be radically different.  Kansas state expenditures would have been $890 million, or 19 percent lower in FY 2005 with TABOR in place.  However, the potentially large cuts that would have been required to accommodate the TABOR limits are astounding:  (1)

  1. 10,000 K-12 teachers would have been cut(1)
  2. The average pupil-teacher ratio would have increased from 15 to 23.(1)
  3. The Health Wave insurance program for low-income children would have been eliminated – State funding for Medicaid and the State Children’s Health Insurance Program would have been $135 million lower in FY 2005 with TABOR.(1)
  4. Increased university tuition by an average of $1,400 – Higher education would have faced a proportional share of state spending cuts in 2005 for combined cuts of $123 million among higher education institutions.  The system would have quickly evolved to something only the rich could use.(1)
  5. Incarcerating 1,300 fewer inmates – State funding for correctional facilities would have been $25 million less than it actually was in FY 2005.(1)
  6. No highway program would have been established in 1989 and 2000.
  7. Bonds issued to build research facilities at KU, KSU & WSU would have required a public vote.
  8. Public votes would have had to take place to build jails, convention centers, libraries and parks.
  9. The State’s judicially ordered remedy to prison overcrowding at El Dorado maximum security prison would have required a public vote.

The Kansas TABOR proposal is very similar to the amendment currently in place in Colorado.  It holds annual expenditure and revenue growth to inflation plus population.  The TABOR proposal also requires popular vote to override, just as the Colorado amendment does.

OTHER CONSEQUENCES:
Expansion in numbers of governments has occurred in Colorado as a way of getting around TABOR.  The last thing Kansas needs is more governmental entities.

Rural Kansas would be the most devastated by TABOR amendments or statutes.  Most rural counties import significant state dollars to survive; in essence state funding is their lifeline.  With TABOR that lifeline is in jeopardy.

Additionally, when it comes to public voting, rural areas will be at the mercy of the more populated areas.

Starving state government will put significant pressure on priority areas such as social services and K-12 education.  Therefore areas important to business such as economic development programs, higher education and transportation will be the first to be cut.

A shift in the burden to provide basic services will occur from state to local level where the only recourse will be to raise property taxes.

A review of actual government spending in Kansas over the past several years does NOT reveal an alarming trend, in fact:

State and local taxes as a share of personal income are the same percentage today as they were in 1970 and the ratio has stayed about the same during that entire time period. Kansas was 29th in 2004 for total state taxes per capita, 29th in 2004 for state taxes as a % of personal income, 26th in 2002 for per capita state and local taxes and 27th in 2002 for state and local taxes as a share of personal income. (2)

According to the US Census Bureau, in the last few years Kansas’ per capita state spending has remained below the national average ranking 37th highest in 2003, 35th in 2002 and 2001 and 37th in 2004. (3)

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Sources:
(1) The Bell Policy Center, Center on Budget and Policy Priorities and the University of Colorado

(2) All tax numbers and rankings directly from US Census.  Rankings for taxes as a % of personal income use US Census tax data and personal income data from the Bureau of Economic Analysis

(3) US Census Bureau from Table states Ranked by Revenue and Expenditure Total amount and Per Capita Total Amount – various years, http://www.censuscgov/govs/www/state.html