KEPC UPDATE: Special session rules, transportation summit conflict, higher ed & eco devo

In this issue …

  • Questions about the rules of the special session
  • Special session bumps into transportation summit
  • Higher education’s link to economic growth

 

Questions about the rules of the special session

The Kansas Legislature returns to the Statehouse September 3 for a special session designed to preserve the Kansas “Hard 50” sentence for first-degree murder.  Legislative leaders have vowed to limit the session to just that topic, along with a handful of the Governor’s appointments that apparently must have a confirmation vote, according to law.

But just how much can they limit the session?

Governor Brownback’s proclamation calls for a three-day session, ending by 5 p.m. on September 5th.  Many long-time Statehouse regulars doubt that Brownback has the legal ability to say what time the special session ends.

House and Senate leaders can control any new legislation that’s introduced and send it to a leadership-controlled committee where it will remain.

They cannot totally control amendments to legislation on the House and Senate floor.  If an amendment is “germane,” that is, relevant to the subject of the bill, it should be allowed to be debated.  It’s not far-fetched to imagine someone introducing a sentencing-related amendment that does not have to do with the Hard 50.  It’s possible that such an amendment might have to be allowed.

Finally, there’s a lot of legislation that did not pass the 2013 Legislature that is not dead.  It’s simply being held over to the 2014 session.  It would appear to be technically possible under the rules of the Legislature to make a simple motion to pass something.

For example, there are bills that have passed the House and Senate in different forms and still reside in a conference committee.  It’s possible someone could make a motion to adopt the other chamber’s version of a bill, sending it to the Governor for his signature, just as it would have been possible during the regular session.

Whether any of that happens will likely be determined by how well the leadership of the House and Senate can keep their troops in line and focused on the Hard 50 issue.
Special session bumps into transportation summit

Kansas Transportation Secretary Mike King sent out a note in July asking organizations to “save the date” of September 5th for a Transportation Summit to be hosted in Emporia by Secretary King and Governor Sam Brownback.  That puts the Summit on the expected third day of the Special Session on the Hard 50 issue.

Despite the conflict, KDOT says registration is full.

The event is being held to discuss “new and innovative approaches to transportation” in Kansas with transportation and business officials.

 

Higher education’s link to economic growth

The link between higher education and the economy is often cited, but rarely demonstrated with specifics.  Nevertheless, there’s a surprising amount of serious economic research which reveals substantial evidence of this connection.

We recently ran across one such detailed study.

Harvard Professor Robert J. Barro, ranked the 3rd most influential economist in the world, has done groundbreaking work on education and economic growth.  Barro studied roughly 100 countries around the world at different levels of economic progress during the time frame of 1960 to 1995.

He looked at factors like government consumption, the rule of law, public debt, and education levels and quality.

Barro says nonproductive government spending does lower growth.  The rule of law is important.  The amount of public debt doesn’t appear to be a significant factor.  He cites studies that investments in transportation have a positive effect and that research regarding tax systems is largely inconclusive because they are too difficult to measure.

However, Barro’s findings show a very strong connection between economic growth and higher education:

  • Secondary and higher education levels for males aged 25 and over have “a positive and significant effect on the subsequent rate of economic growth.”
  • An additional year of higher education “raises the growth rate on impact by 0.44% per year.”  That’s pretty good considering Kansas growth was 1.4% in 2012 and U.S. economic growth was 2.5% that same year.
  • “Data on students’ scores on internationally comparable examinations in science, mathematics, and reading were used to measure the quality of schooling.  Scores on science tests have a particularly strong positive relation with economic growth.”
  • Barro does not ignore the importance of K-12 education, saying, “Primary schooling is, however, critical as a prerequisite for secondary education.”

The country with the top GDP growth during this time period?

Barro identifies it as South Korea with an average growth rate of a whopping 6% – plus per year.   It’s no wonder why.

There was an unprecedented increase in primary and secondary education from 1975 to 1990.  A commensurate growth in tertiary education took place beginning in the 1990s and continues today.  The Asia Society says 86% of young Koreans enroll in higher education programs.

Barro’s research and conclusions are central to many of the economic and public policy debates of the last three decades.  A mass of other economic research backs up these findings.

I should add that Barro is no liberal.  He’s written for the Wall Street Journal and is recognized as an outspoken critic of Obama Administration economic policies.

History also supports the link between education and economic progress.

The noted economist Richard A. Easterlin found that primary education rates were higher in Europe and North America in the 19th century.  His research shows that education contributed to the economic rise of those regions of the world.  His findings were published in the Journal of Economic History in 1981.

Phillip Stevens and Martin Weale cite Easterlin’s research in their 2003 overview of “Education and Economic Growth.”  They note that, “The spread of formal school seems to have preceded the beginning of modern economic growth.”

So what does all this mean for Kansas?

Whether you agree that there’s waste at our Regents institutions or not, constant tuition increases make it more difficult for students to obtain a higher education.  That affects the quality and quantity of the labor force in a negative way.  If we increase the higher education level, we should see an increase in economic growth.  If we allow the average education level to decline, we will see a decrease.

Kansas should make a serious attempt to remove the growing obstacles to obtaining a higher education for those who want to pursue one, including prohibitive tuition and shortages of quality faculty.

No amount of tax cuts will offset the damage if this isn’t fixed.

LEGISLATIVE TESTIMONY: S.B. 339 – Feb. 14, 2012

Testimony on Senate Bill 339
Senate Assessment & Taxation Committee
February 14, 2012

 

Mr. Chairman and members of the committee, thank you for the opportunity to testify.  I’m Bernie Koch with the Kansas Economic Progress Council, a statewide not for profit organization of businesses, trade associations, chambers of commerce, and individuals.

Lowering taxes can be an important part of state policies to encourage economic development.

However, other factors that can be encouraged by government have been shown by respected empirical studies to be as important, if not more important, including investment in infrastructure and equipment; human capital and labor efficiency; continuing technological innovation; and reliable legal systems. [Read more…]

LEGISLATIVE TESTIMONY: H.B. 2650 – February 9, 2012

Testimony on House Bill 2650
House Taxation Committee
February 9, 2012

Mr. Chairman and members of the committee, thank you for the opportunity to testify on this important topic.  I’m Bernie Koch with the Kansas Economic Progress Council, a statewide not for profit organization of businesses, trade associations, chambers of commerce, and individuals.

Lowering taxes can be an important part of state policies to encourage economic development.  It comes under the heading of economic freedom.

However, other factors that can be encouraged by government have been shown by respected empirical studies to be as important, if not more important, including investment in infrastructure and equipment; human capital and labor efficiency; continuing technological innovation; and reliable legal systems.

States without income taxes

With the attempts to phase out the individual income tax last legislative session, we began to look at the states without an individual income tax and found other factors at work that significantly affect their economies.

States without an income tax usually have abundant natural resources or heavy tourism that results in significant state revenue.  States without an income tax depend more on sales and property taxes to fund government services.  And states without an income tax often have many kinds of other taxes and fees that we don’t have in Kansas. [Read more…]

KEPC UPDATE: tax plan in trouble, ITEP, Laffer, public input on taxes, KEPC testimony

In this issue …

Ø Is Governor’s tax plan in trouble?
Ø
ITEP study finds more cost in tax plan
Ø
Arthur Laffer promotes his book
Ø
Senate Tax Study Group meets today for public input
Ø
KEPC testimony

Is Governor’s tax plan in trouble?

There is rising speculation in the halls of the Statehouse that Governor Sam Brownback’s plan to reduce and eventually eliminate the individual income tax may be in trouble because it steps on too many toes, is complicated, and the numbers seem to keep changing.

Some of the troubling circumstances:

  • Opposition by realtors and homebuilders – The first volley came this week in a Wichita Eagle story, saying, “Wichita Realtors and builders are upset with Gov. Sam Brownback’s plan to eliminate the mortgage interest tax deduction, saying that piece of the governor’s state tax reform plan will stymie an already struggling housing market.”  The groups followed up with a presentation at a meeting of South Central Kansas legislators.
  • The Governor has indicated oil and gas interests have no problem with his proposal to eliminate the two-year severance tax exemption on new pool oil and gas wells, with the exception of oil wells that generate fewer than 50 barrels a day.  However, reliable industry sources say out-of-state oil interests never agreed to anything, and in-state oil and gas folks may be divided on the exemption.
  • Budget director Steve Anderson testified that he believed most people would continue to give financial support to their churches despite elimination of charitable deductions.  Research by the Chronicle of Philanthropy indicates that is probably true for religious organizations, but not for others such as educational foundations.
  • New figures on the Governor’s plan show those making under $25,000 a year would pay additional taxes, due to the proposed elimination of the Earned Income Tax Credit.
  • New figures show the plan is not revenue neutral, as the Governor stated last week, but will cost the state over $90 million dollars.
  • Making the one cent sales tax permanent could be problematic in the House of Representatives, which rejected it during debate last year.
  • A new study shows Kansans will pay $76 million more in federal income taxes as the result of the Governor’s plan (see story below).
  • Some conservative Republicans who voted for last year’s bill to phase out the income tax (Substitute for Senate Bill 1) are grumbling about the many moving parts and the lack of advance vetting.

Early speculation revolves around a scenario where House Leadership introduces its own plan, a cleaned-up version of last year’s Substitute for Senate Bill 1.

ITEP study finds more cost in tax plan

An analysis of Governor Sam Brownback’s income tax reduction plan by a Washington, D.C. research organization indicates it will cost Kansas taxpayers more in federal taxes.  The Institute on Taxation and Economic Policy report says:

“While the Governor’s plan would reduce Kansas taxes overall, it would actually increase federal income taxes on Kansans substantially. Because state income taxes can be written off on federal tax returns by those Kansans itemizing their federal income tax returns, Kansas itemizers would have less state income tax to write off and would see their federal income taxes increase by about $76 million overall, under this proposal.”

A chart in the Institute’s study also seems to indicate only Kansans making over $90,000 a year will get any kind of overall tax reduction.

The report is expected to be part of testimony today to the Senate Tax Study Group.

 

Arthur Laffer promotes his book

Reagan-era “supply side” economist Arthur Laffer spoke to the House and Senate Tax Committees in Topeka Thursday, often promoting a new book about how he would reform California’s fiscal problems.

He seemed to answer some of the questions by suggesting that the answers were in his book.

Laffer is a paid consultant who helped the Governor develop his tax plan.  He was a member of President Ronald Reagan’s Economic Policy Advisory Board.

He told legislators that in the last 60 years, eleven states have introduced a progressive income tax, and that in the five years prior to enacting the tax, those states had a higher share of gross domestic product than they do now.

Laffer said prosperity is determined by overall tax burden, and that lower tax burden states perform better.  He was strongly challenged about his conclusions by Senator Tom Holland (D-Baldwin City).

 

Senate Tax Study Group meets today for public input

The Senate Tax Study Group appointed by Senator President Steve Morris (R-Hugoton) will hold its second meeting this morning in the Old Supreme Court Chambers of the Statehouse.  Chairman Les Donovan (R-Wichita) will take public testimony, but will limit the amount of time each speaker will have.

Donovan says the committee will deliberate and attempt to recommend what action the state should take on taxes at its meeting on Friday, January 27.

 

KEPC testimony

Here is the testimony that KEPC will deliver at this morning’s Senate Tax Study Group:

 

Testimony on Tax Policy
Senate Tax Policy Group
January 20, 2012

Mr. Chairman and members of the committee, thank you for the opportunity to submit testimony on this important topic.  I’m Bernie Koch with the Kansas Economic Progress Council, a statewide not for profit organization of businesses, trade associations, chambers of commerce, and individuals.  We support pro-growth policies for communities and the state.

Lowering taxes can be an important part of those policies.

However, other factors that can be encouraged by government have been shown by respected empirical studies to be as important, if not more important, including investment in infrastructure and equipment; labor efficiency; education, and innovation.

The investment rate in plant and equipment, including efficient physical and communications infrastructure, has a strong positive impact on growth.  The higher an economy’s capital intensity (machines, buildings, roads, bridges, etc.), the more prosperous the economy.

Human capital and the efficiency of labor have also been shown to be significant to growth.  Measures of human capital include the literacy rate, school enrollment ratios, and labor demographics.

Linked to investment and human capital, there is substantial support for the contribution of continuing technological innovation and improvement in sustaining economic growth.  This suggests that support for research and development and education is important.

Public policy which supports economic freedom through open economies supports higher growth rates.  We would include tax structure and business regulation in this category.

Reliable legal systems are a significant basis for economic growth.  These systems provide dependable enforcement of private contracts, protection of private property rights, effective law enforcement, and an absence of corruption.

With the attempts to phase out the individual income tax last legislative session, we began to look at the states without an individual income tax and found other factors at work that significantly affect their economies.

States without an income tax usually have abundant natural resources or heavy tourism that results in significant state revenue.  States without an income tax depend more on sales and property taxes to fund government services.  And states without an income tax often have many kind of other taxes and fees that we don’t have in Kansas.

Alaska – Alaska does not have an individual income tax, but it does have a 9.4% corporate income tax.  According to the Tax Foundation, Alaska draws a nation-high 52.6 percent of its state and local revenue from a group of taxes that includes severance taxes on natural resources, stock transfer taxes, estate taxes, and fees for hunting, fishing, and driver’s licenses.  Alaska is the second-highest oil producing state and collected $7 billion from its severance tax in 2011.  Over 25 percent of the workforce works for government.

Wyoming – Wyoming does not have individual or corporate income taxes, but like Alaska, Wyoming has rich natural resources.  It’s now the largest coal mining state, producing 40 percent of our nation’s coal each year.  25 percent of the workforce is employed by government.  Wyoming is running a deficit and will have to dip into its rainy day fund.

Florida – Florida has no individual income tax, but has a corporate income tax of 5 percent.  Florida’s economy is based on tourism and international trade.  Florida is the top travel destination in the world.

Over 60 percent of Florida’s budget is based on their 6 percent state sales tax.  Their legislature is trying to figure out how to tax online sales to fill their budget gap.  There’s also a proposal to increase the sales tax by three percent to buy down the hated property tax.

Nevada – Nevada has no individual or corporate income tax and it is in the most trouble of any state right now.  It has the highest unemployment rate in the country.  Its budget relies heavily on sales tax paid by tourists and the tourists are slow to come back to the casinos after the Recession.

South Dakota – South Dakota has no individual income tax, but it does have a state corporate tax on financial institutions.

Over 56 percent of their revenue comes from sales tax.  The most valuable industry sector is finance, insurance, and real estate.  Several large financial companies have operations located in the state, especially in Sioux Falls.

The financial service industry began to grow after South Dakota became the first state to eliminate caps on interest rates.  That attracted Citibank in 1981, which moved its credit card operations from New York.  That was the spark that helped South Dakota, along with a good work force and low real estate prices.

The population is growing, but like Kansas, rural areas have declining populations.

Washington – The State of Washington does not have an individual income tax or a corporate income tax.  The largest sector of the economy is aircraft manufacturing.  Of course, that’s Boeing.  I would point out that Boeing moved its headquarters to Chicago in 2001.

Washington State has something called a Business and Occupation Tax that applies to almost all businesses located or doing business in the state.  It varies depending on the type of industry.  It’s a tax on gross income.

Washington relies on sales tax more than any other state.  It’s over 60 percent of their revenue.

Washington raised several taxes in 2010, including the cigarette tax by a dollar, to over $3 a pack.  The legislature is now considering a new $5 per tire fee on certain kinds of tires.  The state has a $2 billion budget gap, which they are considering dealing with by limiting Medicaid coverage.

Texas – Texas has no individual income tax or corporate income tax.

Texas is home to at least one-third of the jobs created nationwide since the recession ended in 2009

The state’s economy is growing about twice as fast as the national rate.  About 40 percent of the job growth came in three areas:  natural resource production, education and health services, and government.

The oil and gas industry now delivers roughly $325 billion a year to the state, directly and indirectly. It brings in $13 billion in state tax receipts, or roughly 40 percent of the total,   financing up to 20 percent of the state budget. 29 percent of all oil and gas workers in the United State live in Texas.  It’s the fracking.

Other factors that influence the Texas economy include trade with Mexico, a large amount of federal spending on military, and the ports on the Gulf of Mexico.  There are 14 of them, including Houston, the 2nd largest port in the U.S.

Over 20 percent of Texas revenues come from other taxes, such as:

  • A fee on oysters taken from Texas waters
  • A petroleum products delivery fee
  • An automotive oil sales fee
  • A fireworks tax
  • A vehicle battery sales fee that’s two to three dollars per battery
  • A 14 percent mixed beverage tax
  • For every customer who enters a sexually oriented business, there’s fee of $5

I bring all of this up about other states because these are significant factors in the economic performance of non-income tax states that are not taken into account by Dr. Laffer’s studies.  That’s not to say there’s no merit in looking at individual income tax reductions, especially for businesses.  That may be helpful.

It would also be beneficial to look at corporate taxes.  There is a really valuable new study that was released by the Arkansas State Chamber of Commerce recently that included information about Kansas corporate tax structure that seems significant.  The study was done by Ernst & Young.

The report looks at the effective tax rate after statutory tax credits on different kinds of businesses in eight states in the region, including Kansas.  The eight states are:  Arkansas, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee, and Texas.

The taxes included are corporate income taxes, franchise taxes, sales and use taxes on business purchases, and local property taxes.

The types of companies considered are corporate headquarters, research and development, durable goods manufacturing, food product manufacturing, renewable energy equipment manufacturing, motor vehicle parts manufacturing, and business support services.

Some of the findings:

  • Missouri out-competes all of the other states studied in five of the seven categories: research and development, durable goods manufacturing, food product manufacturing, renewable energy equipment manufacturing, and motor vehicle parts manufacturing.
  • Texas is most competitive in the region for company headquarters and business support services, but scores poorly on tax burden for renewable energy equipment manufacturing.
  • Kansas beats Texas in both renewable energy equipment manufacturing and motor vehicle parts manufacturing.  Kansas beats all other states studied in these categories except Missouri.
  • Effective tax rates vary widely in Kansas by business.  For example, Kansas business support services have an effective tax rate of 19.7% while durable goods manufacturing has an effective tax rate of 8.1%.  Kansas has the highest tax burden in the region for services, but among the lowest for manufacturing.
  • Missouri’s tax credits average 27%, the highest of the states studied, and have a significant impact on that state’s business tax rankings.
  • Kansas effective tax rate on corporate headquarters is 11 and a half times as great as Texas in this category.

I have included the most important chart in the study in my testimony.

I suggest the legislature needs to look at our competitiveness in this area as well.  Our Effective Tax Rate on business services is the highest of any Effective Tax Rate in any state on any kind of business.  That really sticks out.

There are many who say our tax system is broken and we must do something.  I would ask this question.  Is it broken or does it seem like it because we are trying to recover from the greatest economic downturn since the Great Depression?

Thank for considering that question and also for taking a broad look at Kansas tax policy.

LEGISLATIVE TESTIMONY: H.B. 2091, January 30, 2011

Testimony on HB 2091
House Taxation Committee
January 31, 2011
Bernie Koch – Executive Director, KEPC

Good afternoon, Mr. Chairman and members of the committee. Thank you for the opportunity to appear before you today in opposition to House Bill 2091.

I’m Bernie Koch with the Kansas Economic Progress Council, a statewide not for profit organization of businesses, trade associations, and chambers of commerce. We support pro-growth policies for communities and the state.

Our organization supported the one-cent sales tax increase last year after we received a study that we’d paid for by Dr. John D. Wong, Interim Director of the Center for Urban Studies and the Kansas Public Finance Center at Wichita State University. Dr. Wong was also a member of the Kansas consensus revenue estimating committee. That study compared what happens when you cut spending $350 million versus raising the state sales tax by a penny.

The study results show that a $350 million reduction in state spending would result in the loss of approximately 5,177 jobs across the state.

A one-cent state retail sales tax increase would generate approximately $350 million in additional revenue, but would result in the loss of 3,231 jobs across the state. Both options were bad, but the sales tax increase was the least harmful to jobs and the economy.

The study gave three reasons why a sales tax increase has a lesser negative impact.

“First, a high percentage of government expenditures initially stay within the state’s economy, going either to employees (state residents) in the form of salaries or to local businesses for the purchase of goods and services.”

“Second, the revenue enhancement scenario spreads the negative effects throughout the state, both geographically and across all 2.8 million residents. The effect on any individual and on any business is minor. In contrast, the spending reduction scenario severely affects a small number of state residents and businesses-state employees and those private-sector businesses that serve state employees and state government directly. The likelihood of a business failing under this scenario is much greater than in the tax increase scenario.”

“Third, a portion of the sales tax increase will be exported to tourists and other visitors to the state. The full effect of the tax increase is not felt within Kansas.”

That study was one reason we supported the sales tax increase. Another was that a portion of it will be used to finance the next comprehensive transportation program.

State investment in infrastructure has a strong impact on the economy. One of the first economists to argue this was Dr. David Aschauer in a 1989 study that concluded much of the decline in U.S. productivity in the 1970s was the result of declining rates of public capital investment. His findings have since been confirmed by other studies. Dr. Alicia H. Munnell, in an article published in the Journal of Economic Perspectives, gives an excellent example of why public infrastructure investment helps the economy.

She says a well-constructed highway allows a truck driver to avoid circuitous back roads and to transport goods to market in less time. The reduction in required time means the truck driver is more productive, the producer doesn’t have to hire as many truck drivers or buy more trucks, and there’s less wear and tear on the trucks. Hence, public investment in a highway enables private companies to produce their products at lower total cost. The condition of the highway is just as important as its existence.

Dr. Munnell adds that similar stories can be told for mass transit, water and sewer systems, and other components of public capital. She concludes that public capital investment stimulates private investment and public capital has a positive, statistically significant effect on employment growth.

Finally, I want to tell you about an independent statewide poll that did not get a lot of publicity because it was released just after the election in November. Conducted by the national polling firm Survey USA for television station KWCH, 500 Kansans were asked, “Would you support or oppose repealing the one cent sales tax that went into effect in July?”

38% said support, 47% said oppose, while 14% were not sure.

However, the 38% who supported repeal were then asked, “If repealing the sales tax meant further cuts to education, social services and public safety, would you still want to see it repealed?”

The opposition then melted away, with 67% saying no, 29% yes, and 4% being undecided.

Remember, these were the people surveyed who originally said they would support repeal, but over 2/3rds of the 38% changed their answer to opposing repeal when it was tied to further cuts.

Finally, I know you have a very difficult job this year. I don’t envy you. You already have a $550 million hole in the state general fund. I can’t imagine how difficult it will be to try to find another $300 million plus in reductions.

I urge you to reject this proposal. Thank you for the opportunity to appear

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LEGISLATIVE TESTIMONY: H.B. 2538, February 4, 2010

Submitted Testimony on House Bill 2538
Changes to PEAK
February 4, 2010
Bernie Koch
Executive Director, KEPC

Chairman Carlson and members of the committee, thank you for the opportunity to submit written testimony in support of House bill 2538.

The Kansas Economic Progress Council is a statewide not for profit organization of business, trade associations, and chambers of commerce. We support pro-growth policies for communities. House Bill 2538, which amends the 2009 PEAK legislation (Promoting Employment Across Kansas), fits our criteria for pro-growth economic development legislation and we endorse it.

It expands the type of businesses eligible for the incentive which allows businesses to retain payroll withholding.

In a time when many states are extremely competitive with economic development incentives, we believe Kansas must be vigilant in assessing our economic development “toolbox” on a regular basis, constantly tweaking what we have to make it as effective as possible.

When economic recovery comes, as we are certain it will, Kansas needs to be in a position to take advantage of the companies that also plan to take advantage of recovery through expansion.
Thank you for the opportunity to submit comments. We urge your favorable support of House Bill 2538.

An independent study finds that spending cuts will result in more job losses in Kansas than a one-cent state retail sales tax increase.

Kansas Economic Progress Council Executive Director Bernie Koch said the study was sought after January legislative testimony by Dr. Art Hall, a member of the unclassified professional staff at the KU School of Business. Hall’s testimony indicated a sales tax increase would cost over 19,000 jobs statewide. “We decided to seek a second opinion,” said Koch. “This study shows there are no easy choices, but the solution that causes the least economic damage is a revenue enhancement.”

The study was prepared for the Kansas Economic Progress Council by the Center for Urban Studies and Kansas Public Finance Center at Wichita State University. Dr. John D. Wong conducted the study. He is the Interim Director of both WSU centers and a member of the Kansas consensus revenue estimating committee.

The study results show that a $350 million reduction in state spending would result in the loss of approximately $420 million in output. This would also result in the loss of 5,177 jobs across the state.
A one-cent state retail sales tax increase would generate approximately $350 million in additional revenue, but would result in the loss of approximately $363 million in output. This would also result in the loss of 3,231 jobs across the state. Thus, the combined effect of maintaining $350 million in state spending with a one-cent sales tax increase is maintaining $57 million in total state output, $84 million in total value added, $102 million in labor income, and 1,946 jobs.

The study gives three reasons why a sales tax increase has a lesser negative impact.
“First, a high percentage of government expenditures initially stay within the state’s economy, going either to employees (state residents) in the form of salaries or to local businesses for the purchase of goods and services.”

“Second, the revenue enhancement scenario spreads the negative effects throughout the state, both geographically and across all 2.8 million residents. The effect on any individual and on any business is minor. In contrast, the spending reduction scenario severely affects a small number of state residents and businesses-state employees and those private-sector businesses that serve state employees and state government directly. The likelihood of a business failing under this scenario is much greater than in the tax increase scenario.”

“Third, a portion of the sales tax increase will be exported to tourists and other visitors to the state. The full effect of the tax increase is not felt within Kansas.
“We are pleased that Dr. John Wong agreed to do the study,” Koch said, “particularly because of his impressive credentials and outstanding reputation as a researcher and economist.” The study will be sent to every Kansas legislator.

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