Kansas says ALEC is WRONG

Bernie Koch: Tax cuts aren't magic formula for growth

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By Bernie Koch

Two studies recently ranked the states on their economic performance and outlook, reaching vastly different conclusions about Kansas.

The American Legislative Exchange Council's "Rich States, Poor States" study ranked Kansas 27th among the states in overall economic outlook. The study concluded that low taxes and low regulatory burdens are the keys to a strong state economy and that state income taxes should be eliminated.

The "Rich States, Poor States" study is useful, but it's a narrow approach to the evaluation of economic competition. Respected empirical studies indicate other factors to be as important, if not more so. These include infrastructure and equipment, labor efficiency, education and innovation.

Business news channel CNBC measured many of these factors in its recent study, "Top States for Business," which ranked Kansas No. 11. Kansas does particularly well against states that do not have an income tax.

The only state without an income tax that ranked ahead of Kansas was Texas. It was No. 2 behind Virginia. Texas also ranked second in the "Rich States, Poor States" study in economic performance, but for different reasons. Many in Kansas have urged our legislators to imitate the Texas tax system — meaning eliminate income taxes.

In the CNBC study, Texas received high rankings in infrastructure and transportation, technology and innovation, access to capital, and cost of living.

Consider transportation. Texas has more public road and street mileage, more highways, more bridges, more railroad mileage, and more airports than any other state (more than 10 percent of all airports in the country). It also has 16 ports on the Gulf of Mexico. The "Rich States, Poor States" study paid no attention to these advantages.

Interestingly, the CNBC study ranked Texas 33rd in the cost of doing business. Kansas actually beat Texas in this category, ranking 27th, even though Texas has no individual income tax.

This is not surprising. The Texas Taxpayers and Research Association says that 61 percent of Texas' state and local taxes are paid by business, and "Texas' reliance on sales and property taxes heavily ties our tax system to the production and sale of 'goods,' placing a high tax burden on capital-intensive businesses."

The association concludes that the service sector in Texas has a relatively light tax burden, while economic sectors such as agriculture, manufacturing and retail are paying a disproportional load. Yes, Texas is growing more jobs than any other state, mainly in the service sector.

Other structural problems of Texas' tax and budget system have been coming to the forefront recently.

Standard & Poor's, the credit-rating agency, issued a report this year blaming Texas' budget problems more on its tax and budget structure and less on the weakness of the economy. It concluded that the problems were likely to reappear and persist.

We shouldn't imitate Texas, and we should be skeptical of the conclusions of "Rich States, Poor States." There can be a positive impact on the economy by strategically lowering taxes, but it's not a magic formula for economic growth.

Bernie Koch of Wichita is executive director of the Kansas Economic Progress Council, based in Topeka.

Read more: http://www.kansas.com/2011/07/10/1927742/tax-cuts-arent-magic-formula-for.html#ixzz1RmHYVWjs

MN Tax Incidence Study

Nearly 60% of Minnesotans find themselves making the lowest quarter of incomes in the state.

Executive Summary

http://taxes.state.mn.us/legal_policy/Documents/other_supporting_content_2009_tax_incidence_study_links.pdf

This study reports the distribution of calendar year 2006 Minnesota state and local taxes in relation to taxpayer income, along with projections for calendar year 2011.  It answers the question, “Who pays Minnesota’s taxes?”  The major objective is to provide taxpayers and policymakers with important information on the equity or fairness of the overall distribution of Minnesota taxes.  

This is the tenth biennial tax incidence study prepared in response to the statutory requirement enacted in 1990.

The report estimates 1) how the total state and local tax burden on Minnesota households varies by income range, and 2) how the burden of each component of the overall state and local tax system is distributed across Minnesota households.   Aggregating the impact of each component yields an estimate of the distribution of the total tax burden.  The estimates include taxes with an initial impact on businesses, such as the corporate franchise tax and the sales tax on business purchases, as well as taxes imposed directly on households.  The initial impact of taxes imposed on Minnesota households and businesses is discussed first.  The analysis then proceeds to estimate the final incidence of taxes on Minnesota households, after taxes imposed on businesses have been shifted to those who 

bear the final burden.

The report:

 Analyzes  $22.1 billion in taxes collected in 2006, a total that represents over
99 percent of all state and local taxes.
 Identifies the shares paid initially by households (64.8 percent by Minnesota
residents and 2.8 percent by nonresidents) from the share paid initially by business
(32.5 percent).
 Estimates the extent to which the business taxes are shifted to consumers (in
higher prices) or labor (in lower wages), rather than being borne by owners of
capital (in lower rates of return).  Also estimates the extent to which the ultimate
burden is “exported” to nonresident owners of capital or nonresident consumers.
 Calculates average household tax burden by income range.  That burden consists
of taxes imposed directly on households, such as the income tax or consumer sales
tax, plus the household share of taxes initially imposed on business but shifted to
households, the ultimate payers.   Income is defined to include all forms of cash
income, both taxable and nontaxable.
 Presents results by population decile, each decile including one-tenth of all
households (the lowest-income 10 percent in decile 1 and highest-income
10 percent in decile 10).
 Projects the 2006 results forward to 2011, accounting for the effects of both law
changes and economic growth on the mix and level of state and local taxes.2

Conclusions of the research are:
 Of the total $22.1 billion in 2006 taxes, 83.9 percent of the burden ultimately falls on Minnesota residents ($18.5 billion).  The remaining $3.5 billion of the tax
burden is exported to nonresident consumers or nonresident owners of capital
 In 2006, the state and local tax burden on Minnesota households averaged
11.2 percent of income, down from 11.6 percent in 2004.  But half of that drop is
due to use of an expanded definition of income in this year’s study.
 The local tax share of tax revenue rose from 25.8 percent in 2004 to 26.7 percent
in 2006 and is projected to rise significantly to 31.7 percent in 2011.  The state tax
share fell from 74.2 percent in 2004 to 73.3 percent in 2006 and is projected to fall
to 68.3 percent in 2011.
 The share of state and local revenue derived from consumption taxes fell from
33.7 percent in 2004 to 31.8 percent in 2006 and is projected to fall to 30.3 percent
in 2011.  The share of income tax rises between 2004 and 2006, but falls in 2011.
The property tax share declines slightly between 2004 and 2006, but is projected
to increase substantially by 2011.
 The business tax share of total tax revenue falls from 33.2 percent in 2004 to 
32.5 percent in 2006 but is projected to rise to 32.7 percent in 2011.
 After allowing for the shifting of business taxes, the Minnesota tax system in 2006 was somewhat regressive (and significantly more so than in 2004).  In contrast to the results shown in recent studies, effective tax rates were above the 11.2 percent average for  all except the tenth decile. The Suits index, a measure of the progressivity or regressivity of a tax or tax system, fell from  -0.024 in 2004 to  -0.053 in 20061
. This change suggests a significant increase in overall regressivity,
in large part due to greater income inequality in the stronger economy.2
 Minnesota’s refundable income tax credits and property tax refunds for
homeowners and renters substantially reduce overall regressivity.  In their
absence, the 2006 Suits index would fall from -0.053 to -0.075.
 Incomes are expected to grow by only 15.5 percent between 2006 and 2011.  Tax receipts are forecast to grow at a slightly higher rate, raising the overall effective tax rate to 11.4 percent.
 The  population-decile  Suits index is projected to fall only slightly to -0.051 in
2011. Income growth is expected to outpace  tax  growth in  the  lowest three
deciles; the reverse is true in deciles 4 through 10

Legislators Target Workers

Submitted by AFSCME Council 5 on February 17, 2011 - 11:21am.

The Legislature is only a month old and it is already painfully clear what the priorities are for Republican legislative leaders. First, increase corporate giveaways. Second, protect the rich. Third, attack public workers, cripple unions, undermine collective bargaining rights, and dump an even bigger burden on local taxpayers, students and their families. Members can do their part to fight the ongoing attacks by attending Council 5’s Day on the Hill March 22 and contacting their local legislators.

Gov. Mark Dayton vetoed Republican legislation that chopped nearly $1 billion in spending, primarily through cuts to cities, counties, higher education, and services such as child protection. Gov. Dayton called the bill “piecemeal” legislation filled with “misguided priorities” that would cut services but raise property taxes by $448 million.

Among Republican proposals:

• Cut corporate income taxes – even though it makes the state’s budget deficit $200 million worse. (SF1)
• Cut corporate property taxes – even though it squeezes schools and local governments even more. This corporate tax break means homeowners will have to pick up more of the property tax tab. (SF1)
• Cut the state workforce by 15 percent, which will eliminate 5,000 jobs in the middle of a recession. (HF4) 
• For state workers who jobs remain, impose a two-year wage freeze (HF127); increase the threat of privatization (HF53); force them to compete to keep their own jobs (HF192); and pave the way to eliminate their pensions. (SF81)
• Consolidate all accounting, financial, procurement, fleet service, human resource, and payroll functions of all executive branch agencies into one agency – or allow them all to be privatized. (HF418)
• Strip state government down to eight departments by merging Corrections, DEED, Health, Human Rights, Labor and Industry, Management and Budget, Revenue, Transportation and Veterans Affairs into other departments. Also merge Housing Finance, the Iron Range Resources Board, Mediation Services, and Pollution Control into other agencies. (HF419)
• Impose a two-year wage freeze on all public school employees and outlaw economic strikes by school employees. (SF56, HF381)
• Drive down wages for all workers – and handcuff unions and their members’ power to improve wages, benefits and working conditions – by adding “work for less” loopholes to the state constitution. (HF65)
• Eliminate equal pay for women (HF7, SF282)
• Allow MnSCU to deny seniority raises to full-time faculty (SF253)
• Muck up the ability of public employees and retirees to participate in insurance programs (HF371,SF247)
• Drive up costs of retiree health insurance (HF404)
• Limit teacher tenure to 5 years and give school districts the ability to unilaterally terminate teachers at the end of every 5-year period (SF251)
• Cut more state aid to higher education, which means more layoffs, fewer courses, but higher tuition. (SF60) Cut tax breaks for renters, but keep the decade-old tax breaks for millionaires. (HF129,SF82)

Gov. Mark Dayton has criticized the raft of Republican proposals as an attempt to demonize public workers and drive a wedge between Minnesotans. “Most public employees,” Gov. Dayton said, “are extraordinarily dedicated, hard-working people who are striving to make ends meet for their families, just as people in the private sector are.” 

WSJ: Governors Get a Jump on Corporate Tax Reform

CONSIDER THE SOURCE

Wall Street Journal editorial, The State Business Tax Revolt: Governors Get a Jump on Corporate Tax Reform:

President Obama says he wants corporate tax reform but hasn't proposed how to do it. Maybe he should take a look at the states, where as many as 10 new Governors are moving ahead to reform and reduce business taxes. The motive is to attract more businesses and create more jobs, while avoiding the fate of California and New York.

Take Iowa, which has the highest state corporate rate at 12%. Add that to the federal rate of 35%, and the Tax Foundation says the Hawkeye State may have the highest levy in the developed world. Governor Terry Branstad, back for a second stint in Des Moines after 12 years, wants to cut the top corporate rate in half to 6% because "we just can't compete with this high tax rate anymore." Mr. Branstad has been sending letters trying to recruit Illinois businesses, where the small business tax rose by 67% and the corporate rate by 30% to 9.5% in January.

Iowa's corporate tax suffers from the same defects that hobble the federal system. It imposes an onerous rate on those companies that get stuck paying it, but the legislature has carved out so many credits and loopholes for politically favored firms that the tax doesn't raise much revenue. So even though Iowa has the highest statutory rate, it ranks 36th in per capita collections. It's all pain for little gain. ...

These Governors can only do so much because the biggest hurdle to new investment is the federal tax of 35% that is the second highest in the world and far above the international average. The President's own tax commission concluded that this tax sends jobs abroad. What is Mr. Obama's Treasury Department waiting for?