Cutting Taxes has helped, not hurt, Kansas

June 2, 2015 Posted by Patrick Marvin - No Comments

Facts can be dangerous to an argument.

Perhaps that’s why opponents of income tax reform routinely choose to omit crucial facts and key information when making their case that lowering taxes hurts our economy.

For example, liberal-blogger Amy Fried chose to cherry-pick her facts when she recently attacked Gov. Paul LePage for his comments regarding Kansas experiencing economic growth and development.

“LePage rant got it really wrong on Kansas,” proclaims the title of Fried’s article, which argues that Kansas’ recent tax reform has not created economic growth, but has led to a situation where “Kansas is doing rather poorly.”

To back up her bold, but ultimately inaccurate charge against LePage’s comment – and by extension the state of Kansas — Fried does what she frequently does:  cherry pick data to give an inaccurate impression of reality, to conform to her left-leaning political bias.  Fried cites just a single graph by economist Menzie Chinn which appears to show that Kansas’ is performing worse than a few other states which have high income taxes.

But there are several problems with Fried and Chinn’s argument against Kansas, and even more issues with the broader conversation on the effectiveness of Kansas’ tax reform. Some of these problems include:

Measuring Kansas against other states

A major problem with conversation on the success of Kansas is that the state is constantly being compared to other states around the country that have not undertaken tax reform.

Supporters of Kansas’ tax reform efforts will often proclaim that “Kansas has better [insert metric here] than [insert state here], so the tax reforms must be working.” Likewise, opponents of Kansas’ reforms argue the opposite, “Kansas has lower [insert metric here] than [insert state here] so the tax reforms must not be working.”

But on both sides, these comparisons are borderline irrelevant.

Every state is different, has a different economy, and has countless different variables that are influencing their economic growth. States have different natural resources, different economic industries, different workforces, different educational institutions, different markets, and different geographies.

When it comes to economic growth and employment, each state comes from a different place, and charting economic performance of various states against each other can be troublesome. For example, you could look at unemployment in the state of Michigan, and compare it to the state of New Hampshire.  Michigan has dropped its unemployment rate by 9.3% since June of 2009, while New Hampshire has only dropped its rate by 2.7%.

That must mean that the economic policies of Michigan under Republican Gov. Rick Snyder are superior to those under Democratic Gov. Maggie Hassan, yes?  While I would certainly argue that is true, it is also important to note that Michigan saw peak unemployment of 14.9%, and New Hampshire saw peak unemployment at 6.6%.  They are very different states, with different characteristics, industries, and economic realities.

One to one comparisons are basically meaningless, in many ways.

The question on Kansas should not be whether or not it’s outperforming other states, but whether or not it’s outperforming the economy it would have had, if it hadn’t enacted tax reform.

Kansas didn’t enact tax reform to be more like California, Wisconsin, or Minnesota – it enacted tax reform to improve and grow its own economy and correct years of economic mismanagement.

Only measuring Kansas against three other states

What’s the only thing worse than using a misleading statistic to make an argument? Easy. Using a misleading statistic incorrectly.

Not only do Chinn and Fried mistakenly compare Kansas with other individual states without much context, but they limit their analysis to three cherry-picked states.

The real strength of comparing states is in the aggregate, with more data contrasted with a much larger universe of states.  Of course, they don’t paint the whole picture and tell you how Kansas stacks up against every state, because reality isn’t as dark as they want to make it seem.

Having too short of a time-frame

Pundits and policy-makers want instant results. They want to instantly see the impact of policy changes, and quickly deem the change a success or failure.

However, tax reform doesn’t work that way.

Experts agree that it will take several years before the full effect of Kansas’ tax reform is realized, and even longer before we have a complete understanding of whether or not the reform achieved its goal.

By already declaring Kansas’ tax reform a failure (and only analyzing Kansas’ economy in the past three months as Fried and Chinn do) we are doing a disservice to the conversation on tax reform, and only encouraging short-sighted policy making and quick-fix governance.

Failing to take into account external factors that are impacting the Kansas economy

The tax reforms in Kansas have not taken place in a vacuum. There are countless other factors influencing Kansas’ economy and helping to determine whether or not it shrinks or grows.

For example, according to Bureau of Labor Statistics, Kansas has lost nearly 1,000 jobs in the last year alone in the oil and gas industry, a move that was not caused by any state policy.

Kansas has also failed to recover many of the thousands of aircraft production jobs that were lost during the most recent recession, another trend that has not been impacted by the recent tax reform.

As stated earlier, every state’s story is different, and the peculiarities of each member of the Union dictate economic performance as much as policy does.  But sadly, none of these factors were taken into account by Chinn (or Fried).

So, what is the truth? What is really happening with Kansas’ economy?

As stated earlier, it’s still too early to definitively quantify the long-term effects from Kansas’ experiment with tax reform.

And although Kansas is currently facing a serious budget shortfall (simply because of its failure to cut spending along with taxes) the short-term results of its tax reform look extremely promising.

According to the coincident index data (which broadly measures economic performance) which was cited by Chinn, Kansas’ own index rose by an average of just .01% every month between December 2000 and December 2012 (right before the tax reforms took effect).

That same figure was .17% between January 2013 and April 2015.Pic

And consider the graph at on the right, which displays the coincident index values for Kansas since 2005, and shows the changes since Kansas enacted its tax reform. Does this look like a state that is “doing rather poorly” since improving its tax code?

Moreover, in March 2013, just three months after the tax reform took effect, Kansas had an unemployment rate of 5.5%. By this April, the unemployment rate had fallen to 4.2%.

And lastly, there is the case of Kansas City, which is split nearly evenly between Kansas and Missouri. Because of the recent tax reforms, the top personal income-tax rate on the Kansas side is now 4.9% and kicks in for single filers at $15,000. On the Missouri side, the highest rate is 6%, and it starts for single filers at $9,000.

Which side is doing better?

Well, over the past two years, private-sectors jobs on the Kansas side have increased by 5.6%. On the Missouri side, they’ve increased by just 2.2%.

After looking at all the data, it seems that Fried’s argument that Kansas is “doing rather poorly” is the only claim that is not grounded in reality.

So, instead of jumping to conclusions and attacking those who want to reform our tax code, how about we engage in a productive discussion that is based on all the facts?