Kansas: An Unsung Hero For Economic Growth

Posted on: July 19th, 2016

During this news cycle, the Midwestern governor occupying the greatest media bandwidth is the one just selected for a spot on the GOP ticket. We can certainly expect to see Indiana Governor Mike Pence’s name all over the news for the next four months, but it’s also worth taking a look at how other Midwestern governors are making a real impact, and at the state level.

Kansas Governor Sam Brownback’s 2013 tax reform is to thank for the state’s economic growth and low unemployment rate. Photographer: David Paul Morris/Bloomberg

Now in the third year of his bold tax experiment, Kansas Governor Sam Brownback can see the ways in which reducing (and, in many cases, eliminating) the state income tax is yielding incremental, positive effects for Kansans.

Significantly, every year since the tax cuts were implemented, Kansas has surpassed the state record for new business formations. When we consider that startups have decreased nationwide since the Great Recession of 2008, this achievement is particularly remarkable. What’s more, the Kansas unemployment rate stands at 3.7% – the lowest the state has seen since 2001, and well below the national average of 5.5%.

Why the incremental success in Kansas? We certainly can’t attribute these victories to the state’s core industries; due to economic turmoil felt nationwide, Kansas too has seen dips in farm incomes (owing to consistently low crop prices and steep declines in cattle prices), a fall in commodity prices and exports, sluggish movement in oil and natural-gas markets, and declining manufacturing. Without these four industries buoying Kansas’ economy, we must look to other factors: namely, the income tax cut that continues to make a real difference, particularly for small businesses and working families.

Governor Brownback put his faith in the private sector to grow the Kansas economy, rather than the government. By eliminating the income tax for small business, the Brownback administration effectively put money back in families’ pockets and provided promising new businesses with an environment primed for growth. Following the major tax reform in 2013, individual income taxes for individuals, families and small business went down by 30% on average. Seventy-one percent of the savings went to individuals and families, who could then save or spend as they chose. Twenty-nine percent of the savings went to small businesses, allowing them to make larger investments in equipment, space and staff.

Prior to tax reform, Kansas possessed the second-highest individual income tax in the region; today, it is the region’s second-lowest, bested only by Colorado. This is meaningful not just for small businesses and middle- to upper-class families, but also for Kansans of fewer means. Kansas now offers the highest Earned Income Tax Credit in the region. Plus, the Brownback administration increased the standard deduction for “head of household” filings in order to help single-parent households. Importantly, 388,000 of the lowest-income Kansans have been removed from the tax rolls, leaving them with zero tax liability.

Equally important from a regional perspective is that fact that Kansas is gaining ground over neighboring Missouri when it comes to gains in net adjusted gross income. In 2013, the same year that the Brownback tax cuts took effect, Kansas experienced a positive reversal in migration of wealth between the two bordering states. Kansas enjoys a nearly $85 million advantage in income gains from Missouri. This is a major reversal. Consider the data between 1995 and 2009, which shows more than $263 million leaving Kansas for Missouri. A longitudinal examination of this trend will bear out whether the flow of money correlates with the institution of Brownback’s tax policy, but the current evidence is certainly compelling. While other state economies struggle under the weight of current economic uncertainties, the incremental successes in Kansas make a solid case for pro-growth reform through income tax cuts.

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