KCEG report challenges claim falling commodity prices led to economic woes

Published: Mar. 26, 2018 at 2:57 PM CDT
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A new report questions state leaders' claims that falling commodity prices undercut then-Gov. Sam Brownback's "Kansas experiment" that slashed income taxes in the state, with the long-term goal of eliminating them.

"Looking at the numbers, it was clear that declines in the farming and energy sections weren't enough to cause Kansas' budget problems. The Brownback tax cuts were the principal cause," assistant research analyst for the Kansas Center for Economic Growth Michael Raven said.

quickly points to other, neighboring states which are more reliant upon agricultural income than Kansas, yet reportedly fared much better when commodity prices plunged four years ago. Using Iowa as an example, the report claims that state’s revenues actually increased in all but one fiscal year between 2012 and 2017. The report’s authors argue that proves rural states can maintain growth despite drops in agricultural prices.

Looking at the timeline of the declines, KCEG says Kansas revenues began their nosedive after the passage of the 2012 tax cuts, dropping $700 million before the time when commodity price changes began taking their toll on state collections, which they say happened between 2014 and 2015. During that span, Kansas’ credit rating had already been downgraded by Moody’s and S&P, in April and August 2014 respectively, “because of the structural imbalance created between revenues and expenditures.”

Insofar as the effect of severance taxes, i.e. taxes levied on non-renewable resources such as oil and natural gas, the report finds their share of overall revenue fell by more than half, from 1.68% to 0.66% of total receipts. However, it notes those taxes only amounted to $98 million in 2011 versus the $2.7 billion reaped in from income taxes. By 2017, those collections had fallen to $42 million and $2.3 million, respectively.

The study contends the latest tax bill, passed in June 2017, ended “the most harmful provisions of the Brownback tax experiment.” It pushes state lawmakers to “identif(y) sustainable and renewable funding sources that can be used to build thriving communities.”

“Kansas should undo previous short-sighted tactics that only serve to deprive Kansas of vital services, develop and contribute to a budget stabilization fund, and bring Kansas’ antiquated tax code into the 21st century,” it concludes.

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