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Candor lacking on state budget

By A Contributor

Kansas tax revenues continue their decline below projections — another $28 million in June. Secretary of Revenue Nick Jordan is still trying to use the impact of federal tax law on capital gains to justify the $338 million Kansas revenue shortfall at the end of the 2014 fiscal year on June 30. There is a slight shred of truth there, but it is not the whole truth.

Having been a member of the Kansas Consensus Rev-enue Estimating Group for more than 10 years prior to 2010, I find it ludicrous that the governor is blaming the shortfall of income tax rev-enue primarily on varia-tions in capital gains. Income tax revenue for the current fiscal year was 12 percent below the projection. Moreover, personal income tax collections are down 24 percent from the total at the end of the last fiscal year. 

In the latest information from the IRS (Statistics of Income, tax year 2011,) the share of capital gains in total taxable income was only 5.6 percent, though it was undoubtedly larger in 2012. My best guess, without the benefit of complete data, is that the capital gains decline will account for 25 to 30 percent of the revenue shortfall. That is, capital gains are simply too small a share of taxable income to explain any but a small part of the decline in revenues.

Either the Kansas economy is in terrible condition or Gov. Sam Brownback’s tax cuts have dras-tically reduced income tax revenues below the adminis-tration’s inflated hopes and projections. The latter is likely the cause. The governor does not want to admit it.

That decline in receipts from capital gains taxes, trotted out by the governor as an excuse for all the revenue shortfall, incident-ally, was due to President Bush’s (not President Obama’s) “temp-orary” reduction in tax rates that was due to expire after 2012 when rates were to rise back to their former level — part of the fiscal cliff.

The impact of federal tax policy on revenues in Kansas went something like this: To avoid expected higher 2013 tax rates on capital gains, investors in 2012 accelerated their sales of assets, exceeding the long-run trend. As an offset to high 2012 sales, investors scaled back their asset sales in 2013 below the trend line. This has reduced current revenue somewhat. But it accounts for only a small part of the entire decline.

Secretary of Revenue Jordan, in a column in June, did concede that Kansas income tax revenues are falling for reasons beyond the drop-off in capital gains collections. He noted that tax collect-ions will decline further in future years because of rate reductions and the elimination of income taxes on businesses. In this regard, he agrees with what many experts have been telling him and the budget director for the past two years.

The next step toward honesty is to note that, due to the gov-ernor’s income tax reductions, there will be insufficient revenue in future years to fund current state programs, which are already at a reduced level because of Brownback’s policies.

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