Kansas economics: Money determines available services

opinions

October 20, 2012 - 12:00 AM

Joe Aistrup was asked to talk about government, politics and the Kansas economy at KU Thursday.
“All I would have to do to alienate everyone in the room would be to add religion to that list,” he said.
Aistrup is professor of political science at Kansas State University. He was the lead speaker at the 37th annual Kansas Economic Policy Conference at the University of Kansas on Wednesday.
“First, the good news. Commodity prices are strong, the crop insurance program works well and the oil and gas industries have been profitable for years,” he said. Rural Kansas is doing well, despite the drought. On the flip side, the aircraft industry which used to be a pillar of the state’s economy is weak. Boeing is leaving Wichita. The worldwide demand for corporate jets has dropped because of the recession.
But unemployment in Kansas is just a little over 6 percent, while the national rate is 7.8 percent. The state wasn’t hit hard when the housing bubble burst in other states because there never was a housing boom here.
The Kansas economy is growing and disposable income per capita is about $38,000, which is almost exactly the national level.
The outlook, Prof. Aistrup said, is worrisome because of the uncertainty. First, the nation faces the so-called fiscal cliff. Unless Congress acts before the first of the year, government spending will be slashed deeply and tax rates will go back to Clinton-era levels. Nationally, economists say the combination will shrink the U.S. economy by about 5 percent and toss the country back into recession.
“I also look at the price of gasoline as a forecaster. When the price of gas approaches $4 a gallon, the economy slows down. It is about at that level now. High gas prices suck money away from other purchases. Retail sales slump. Unemployment rises,” he said, illustrating the correlation with a chart.

TURNING TO politics, Aistrup noted that Kansas government had shifted sharply to the right. He contrasted the administrations of Bill Graves and Kathleen Sebelius to that of Sam Brownback and said the difference can be seen in the effect of the latest tax cuts.
Aistrup noted that for many years Kansas policy makers had maintained a tax structure in which roughly equal amounts of government revenue were raised from the sales tax, the income tax and the property tax.
Today that three-legged revenue stool is more like a two and one-half legged stool, he said, because income taxes had been reduced so much. The effect of tax reductions made since 1995 has been to reduce state income by more than $8 trillion dollars.
Some of those reductions were made by increasing the number and magnitude of exemptions and credits.
“If all of the sales of goods and services were taxed, the state could lower the sales tax to two cents without losing revenue,” he said, and added that eliminating all of the deductions, exemptions and credits on all taxes — sales, income and property taxes — “might be a good place to start on restructuring.”
Aistrup projected Kansas will be forced to reduce state spending significantly unless new revenues are found because the tax cuts now in place would reduce income below this year’s spending level.
He said the shift to the right has changed the way the administration thinks.
“It used to be that our governor and legislators would decide what the state should do to meet the needs of the people and then decide how best to raise the money needed to accomplish those things. Today the approach is the opposite. The lawmakers decide what the level of taxation should be and then see what needs can be met with the money raised. The contrast between those approaches is profound,” he observed.

AISTRUP TOLD a questioner that cutting taxes does stimulate the economy because it puts more money in the hands of the public. The question is whose economy is stimulated. When a Kansan gets an extra dollar he or she isn’t required to spend it in Kansas. It can be spent anywhere in the world. Or it can be socked away and a bank may invest it in New York, Paris or Hong Kong, he intimated.
“Cutting taxes to stimulate a particular economy is like pouring gasoline on the top of your car and hoping that at least some of it will end up in your gas tank,” he said.

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