As N.H. Budget Debate Continues, Kansas Offered as Example of Tax Cuts Gone Awry
As New Hampshire lawmakers prepare for the next phase of the state's long-simmering budget debate, they're being urged to consider a cautionary tale from half-way across the country.
In a presentation to Granite State legislators earlier this week, two speakers from Kansas laid out a grim set of data depicting a state in fiscal freefall: underfunded schools, unpaved roads, neglected rural areas, and budget ledgers awash in red ink.
The reason for this supposed financial calamity? A series of steep tax cuts enacted by the Kansas legislature, with the support of that state's Republican governor, in 2012. Here's where the New Hampshire connection comes in: As the Legislature prepares to vote next week on whether to overturn Democratic Gov. Maggie Hassan's veto of the Republican-backed state budget, the debate has largely boiled down to one issue: whether New Hampshire should reduce its business tax rates. Republicans say yes; Democrats say no -- and they're pointing to Kansas as a reason why not.
And that's why the New Hampshire Fiscal Policy Institute, a left-leaning think tank, invited the two Kansans with experience in their state's budget battles to share their analysis with a room of mostly Democratic lawmakers Wednesday afternoon.
"We're in a perpetual budget crisis, and that's been a huge cost that's hurt us a lot," said Duane Goossen, one of the speakers and Kansas's state budget director from 1998 to 2010.
The presentation probably didn't change any minds; most of those in attendance were Democratic legislators, who have been fairly united for months in their opposition to the Republican tax cut proposal. But, if nothing else, the Kansas story gives Democrats an object lesson they can point to in continuing to fight the cuts.
But what -- if anything -- does Kansas' experience have to teach New Hampshire? How relevant an example is it to the tax cut debate here?
First, some Kansas history: Three years ago, lawmakers, at the urging of Republican Gov. Sam Brownback, reduced Kansas's top personal income tax rate from 6.45 percent to 4.9 percent. They eliminated the income tax altogether for small business owners who file as individuals. These cuts were part of a larger plan by Brownback to eliminate Kansas' income tax altogether, thereby boosting the state's appeal as a destination for business owners, corporations, investors and others.
Since then, however, Kansas' budget has been sputtering. The tax cuts -- and the resulting drop in revenue collections -- have resulted in deep budget deficits: $350 million in 2015 and $650 million in 2016. Lawmakers there have responded by pushing through other tax increases -- including the state sales tax and a separate taxes on cigarettes -- in addition to some spending cuts.
That's certainly not the outcome Brownback and his allies forecast, and the solution was controversial, leading to deep discord among Republicans in the Kansas legislature. But determining whether that state's tax cuts have had any positive economic impacts is difficult. Job growth in Kansas has been modest since the cuts, and population growth has been flat. Wage growth, however, has been above the national average. Advocates on either side cite statistics to back their case.
Proponents of cutting New Hampshire's business taxes say the Kansas comparison isn't fair. Senate Majority Leader Jeb Bradley, for one, noted that the tax cut in New Hampshire would be phased in over several years, and would cut rates far less than the cuts in Kansas.
In addition, the bulk of Kansas' tax cut package touched on a revenue source that makes up nearly half of that state's general fund. In New Hampshire, the current tax cut proposal is aimed at business taxes, which account for just a quarter of general fund revenue. (See here for a fuller discussion of the New Hampshire's business taxes.)
As in most budgetary matters in Concord, there is a heavy serving of partisan politics at play here. For instance, the vast majority of the audience at the Kansas presentation were Democrats, including the majority of the Senate Democratic caucus and key members in the House such as Minority Leader Steve Shurtleff and ranking Finance Committee Member Mary Jane Wallner. The New Hampshire Democratic Party issued a press release the day after the presentation calling attention to the lessons of Kansas' "unpaid-for corporate tax cuts."
And while Hassan referred to the business tax cuts as a major reason in her decision to veto the Republican-backed budget in June, she's relented somewhat since then. In a series of counteroffers, she has said she'd accept the reduced business tax cuts in exchange for increases in other revenue sources, including the cigarette tax and motor vehicle registration fees. Republicans have so far declined those offers. We may have a better sense of where tax cuts sit in the larger budget debate Wednesday, when the House and Senate vote to override Hassan's veto.