By Max Ehrenfreund
June 7, 2o17
In a decisive repudiation of conservative tax-cutting philosophy, Kansas Republicans voted this week to reverse deep tax cuts enacted by Gov. Sam Brownback (R), a move that lays bare the challenges of one-party control and the risks for Republicans in Washington pursuing a similar policy at the national level.
The vote by lawmakers in Kansas, which came late Tuesday, followed years of frustration about the damaging impacts of tax cuts on Kansas’s state government. With huge Republican majorities, Brownback had pursued deep reductions in tax rates early in his administration, calling them a “real live experiment” in conservative governance, and tried to veto the legislation rolling them back.
Yet the Kansas legislature’s decision to override his veto could reverberate in many statehouses, where Republicans dominate, and in Washington, where President Trump and congressional allies have made passing similarly deep tax cuts a central pillar of their agenda for this year. The tax reductions in Kansas had not delivered the economic growth Brownback had promised but caused massive holes in the state’s budget and led to unpopular spending cuts in areas such as education spending.
“Kansas has had a turn to the far right, and we seem to be centering ourselves,” said Rep. Melissa Rooker, a Republican who represents a suburb of Kansas City and voted for the tax increase.
Kansas’s legislature is overwhelmingly Republican, but moderate GOP lawmakers joined with Democrats after it became clear that support for Brownback’s policies had become a major political liability. In last year’s election, a number of Brownback’s allies lost key races to Democrats or moderate Republicans opposed to the tax cuts. On Tuesday, 18 of the state’s 31 GOP senators and 49 of the 85 Republican members of the House voted against the governor.
The legislation undoes the essential components of Brownback’s reforms. The governor had reduced the number of brackets for the state’s marginal rates on income from three to two. The legislature will restore the third bracket, increasing taxes on the state’s wealthiest residents from 4.6 percent to 5.2 percent this year and 5.7 percent next year.
Marginal rates on less affluent Kansan households will increase as well, from 4.6 percent to 5.25 percent by next year for married taxpayers making between $30,000 and $60,000 a year and from 2.7 percent to 3.1 percent for those earning less than that.
The legislation also scraps a plan to bring those rates down even more in future years, one of Brownback’s promises to conservative supporters.
Finally, the legislature eliminated a cut Brownback had put in place to help small businesses. Analysts said that the provision had become a loophole, as many Kansans were able to avoid paying taxes entirely by pretending to be small businesses.
Initially, the state forecast that about 200,000 small businesses would take advantage of the break. As it turned out, about 330,000 entities would use Kansas’s new rule. That discrepancy suggests that tens of thousands of workers claimed that their incomes were from businesses they owned rather than from salaries.
State budget analysts project the tax increase will raise an additional $600 million annually.
The principles Trump endorsed during the campaign and in the early stages of his presidency are broadly similar to those enacted in Kansas. That is no coincidence, since Brownback is well connected to the Republican policymaking establishment in Washington.
Trump and Brownback have shared economic advisers, and when Brownback was a U.S. senator, Rep. Paul D. Ryan (R-Wis.), now the speaker of the House, served as his legislative director.
“In my estimation, I think the tax policy move last night by the legislature is a wrong move,” Brownback told reporters Wednesday. “It’s wrong for the long-term view of the state of Kansas. I think it’s wrong for growth.”
In recent years, Kansas has served as a real-world example of what can happen if tax cuts fail to deliver promised growth. Since Brownback began cutting taxes in 2012, the pace of economic expansion in Kansas has consistently lagged behind that of the rest of the country. Last year, Kansas’s gross domestic product increased just 0.2 percent, federal data show, compared with 1.6 percent nationally. At the end of 2015, the state was in what many economists would describe as a recession, with the economy shrinking for two quarters in a row.
The governor, however, blamed Kansas’s poor statistics on a lackluster global economy, which he said was slowing exports in agriculture and aviation, two of the state’s most important industries.
The legislature began this year’s session with the government in a deficit of $350 million, leaving lawmakers mulling more budget cuts. They have drained the state’s reserves of cash, diverting money meant for roads, delaying payments to pension funds and, in essence, forcing local agencies to make loans to the state government.
Last year, the governor pushed back the schedule for 25 construction projects planned around the state, the climax of delays intended to keep more cash on hand. In March, Kansas’s Supreme Court ruled that the lack of funding for public schools violated the state’s constitution, forcing lawmakers to act.
Brownback battled back the legislation, issuing a veto on a similar bill in February. On that occasion, the state senate sustained the veto.
Sen. Rick Wilborn, a conservative Republican from a rural district in central Kansas, initially opposed the increase in taxes but switched Tuesday and voted to override the governor. He said he was not pleased with the result but that lawmakers had to act and that he did not believe that conservative Republicans had the votes to improve the bill.
“I said, ‘We need to move,’” Wilborn said. “You just try to make the best of a bad situation and make the vote.”
For Brownback’s opponents, the tax hike is a major victory in a years-long fight to stop the governor from enacting increasingly conservative economic policy. Last year’s election substantially weakened the governor’s support in the legislature. In November, Democrats picked up a seat in the Senate, which has 40 members, and 12 seats in the House, which has 125. In primary elections in August, Republican voters had forced out 14 incumbent allies of the governor, replacing them with more moderate candidates.
Other GOP lawmakers who supported Brownback retired last year, and moderate Republicans won a few of those seats as well. Rooker, the GOP legislator, said her former colleagues were not eager to confront frustrated voters in another campaign, or to deal with the fiscal headaches Brownback’s policies had created if they did win reelection.
“People expect us to take care of business efficiently and appropriately,” Rooker said. “I just think it was the pressure building. Something had to be done.”
“The elections reflected a mood in Kansas that possibly Kansas politics had shifted too far to the right,” said Rep. Don Hineman, a moderate Republican from a rural district in western Kansas who serves as the House majority leader. “It was time to return to a more centrist position, which is where Kansas has traditionally been governed from.”
Topeka is among many state capitals where policymakers face fiscal duress, leaving lawmakers to make painful choices between cutting services and raising taxes Republicans have long criticized.
In Alaska, independent Gov. Bill Walker has proposed restoring the state’s income tax to raise money, which lawmakers there eliminated nearly four decades ago. Yet red states such as Indiana and North Carolina have successfully reduced taxes while maintaining a balanced budget, said Joe Henchman, an attorney at the right-leaning Tax Foundation in Washington. They have done so by reducing spending sufficiently to make up for the difference.
“They didn’t assume that the cuts would pay for themselves,” Henchman said. “It’s true that while tax cuts can boost economic activity, most tax cuts do not pay for themselves budgetarily.”
The budget gaps are driven both by conservative legislators’ tax reductions and by broad changes in the economy. State sales taxes no longer produce as much revenue, due both to online sales and to the growing share of services, which are rarely taxed, in the U.S. economy. A fall in commodity markets globally has reduced revenue in agricultural and fossil-fuel states. In places such as Illinois and Kentucky, public employees’ pensions are short on funds.
In Kansas, this year’s budget battle continued a streak of several consecutive years in which state legislative sessions have gone well beyond schedule, with lawmakers struggling to address the state’s fiscal woes. With the tax increase enacted, Hineman is hoping he and his fellow lawmakers can leave town this weekend — more than three weeks after the state constitution’s limit on the length of the session had expired.
On Saturday, he hopes to head back to his family’s farm, which his son operates. This week, they are putting in grain sorghum. “I’m anxious to get back home, and my son is anxious for me to be home, because he would like to have me on the tractor,” Hineman said.