I am sitting atop a limestone bluff overlooking the Osage River at my home in Folk, Missouri, and it seems as if the only way to get Congress to reform this country’s tax code is to ask for an intervention by the Great and Powerful Oz. But, here in the nation’s heartland, results from an experiment in state income tax policy just might provide other states with a roadmap to real growth.
You may recall from a past Forbes column by me that laid out the landmark legislation signed into law one year ago by the forward thinking Kansas Governor Sam Brownback. Brownback’s tax plan flattened and simplified the tax code, cut personal income tax rates for most earners from 6.45% to 4.9%, and got rid of small business income taxes.
Gov. Brownback’s singular goal was to grow the economy of his state. At the time Kansas had the second highest tax burden in the region, a cash balance of less than $1,000, a projected deficit of $500 million and an unemployment rate of 6.9%. In addition, 73% of the counties in Kansas had witnessed a decline in population.
Instead of continuing to watch billions of dollars in Net Adjusted Gross Income leave Kansas to other states, such as Florida, Texas and Tennessee (all no-income tax states), the legislature and governor identified and seized the opportunity to increase its competitive advantage with neighboring states. It was a bold politicalmove to say the least, but an idea that ultimately struck a chord with politicians, employers and workers across the state.
Just one year later, a close look at the data backs up the economic projections of Brownback’s visionary leadership. Lower income tax rates have in fact stimulated the economy by reducing the price both of work and conducting business in the state, not to mention that lower rates have predictably proven effective when it comes to luring out-of-state businesses to Kansas’ friendlier business environment.
A progress report issued recently by the state’s former budget director, Steve Anderson, one published in the Kansas City Star, shows many indicators of improvement. According to Anderson, the state’s cash balance has risen to $585 million today and they are projecting a surplus in 2014 of nearly $510 million. In addition, the unemployment rate fell from near 7% to 5.8%, as 45,000 jobs were created and the state’s population grew by 27,000. All this while the state reduced the tax burden on workers to the second lowest in the region, and handed just under $250 million back to workers.
And just how have these changes improved Kansas’ position in competing against its neighboring, higher income tax states? According to Anderson, “The Kansas portion of the Kansas City Metro area gained 9,500 jobs from May 2012 to May 2013 while the Missouri side registered no change in total nonfarm employment over the year. Employment on the Kansas side of the metro area reached 454,800 and surpassed the all‐time high of 452,800 recorded in June 2008.”
Back in Missouri, members of the legislature, along with business leaders from around the state, have taken the time this last year to understand the issues surrounding competitive tax policy and the related opportunities for long-term economic growth. In fact, a new coalition called Grow Missouri, composed of business advocacy groups, grassroots organizations, agriculture associations and others is demonstrating the diversity of support for tax reform there.
The Show-Me-State now has real data, made available from our neighbor to the west, which can be used as a reference this coming legislative session. It’s now up to Missourians to create the best tax policy for our own state’s economic growth.