The governor’s approach

It’s a big test of economic theory

By The Mercury

There’s a lot on the line for Gov. Sam Brownback as the Kansas Legislature considers this week how to balance the state budget next year. But there will be even more on the line politically if the governor gets his way.

The governor’s idea is to continue an effort begun last year to reduce income taxes over the next four years while shifting some of the revenue burden over to the sales tax. He would do so by cancelling a decrease in the state sales tax that is otherwise scheduled to take effect in July.

The concept is essentially a Kansas application of what in the 1980s came to be called the Laffer Curve because it was developed for President Reagan by economist Arthur Laffer. It can be boiled down thusly: Lowering the income tax encourages private business to grow, which encourages job creation, which encourages income, which encourages tax revenue.

What the governor is advocating boils down to a lab test of Laffer’s concept, with Kansas setting itself up as the lab. If he’s right —if the state’s economy takes off — Brownback is an economic policy genius, and Republicans both regionally and nationally have a reinvigorated economic formula to rally behind.

The concern, however, is that the governor’s economic bet will be unwise. If tax revenues don’t respond to the “less is more” approach, the state’s ongoing economic problems will be foisted off on local governments to solve, and the governor’s popularity will take a major hit.

Make no mistake, if the Brownback approach fails and income tax revenue collapses he will have set aside the “three-legged stool” concept — income, sales and property tax — that has governed tax policy in the state for all of memory. That will be a big problem.

The governor is likely to get his way in some fashion because both houses of the Legislature favor his approach generally, and what remains to be done essentially boils down to working out the terms. The big difference is with respect to the future of the sales tax cut. The Senate has passed a bill calling for more income tax cuts over the next four years and cancelling the decrease in the sales tax. The House would allow the sales tax to drop with less aggressive income tax cuts.

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