Thank goodness we're not in Kansas....yet

by Rob Schofield, NC Policy Watch, July 8, 2014.

For North Carolina political leaders, the usual way to assess the state’s overall health and progress has been to compare it to the other states of the southeastern U.S. For a variety of reasons – some logical (similar geography and demographics) and some less so (commonalities of culture, language and past deprivations) North Carolinians have long measured themselves against their neighbors. Even if our state was faring poorly on a national or global basis, the notion that we were besting Alabama or Tennessee has provided frequent solace and confirmation of the wisdom of state leaders and their policy choices.

In recent decades, however, things have changed. Today, in our ever-more-tightly-connected and intertwined global economy, competitors and logical objects of comparison can be anywhere. And this is clearly a good thing. Why in the world should North Carolina be stuck forever comparing itself to Mississippi and Louisiana when it can now legitimately aspire to be like Connecticut, Oregon or Finland?

The flipside to this fast-evolving situation, of course, is that there is a deeper pool of lessons and cautionary tales from which to draw. Especially with so many politicians all over the country (and, indeed, the world) being influenced by, and implementing the recommendations of, the same think tanks and lobby groups (can you spell ALEC?) state leaders need not confine themselves to the immediate neighborhood to see what seems to work and what clearly doesn’t.

The Kansas experiment

This brings us to the situation in Kansas. For some time now, Kansas has served as a kind of lab experiment for right-wing politics and ultra-conservative economic policies – at least for states without any huge deposits of easily extractable natural resources like Texas or North Dakota. Moreover, unlike Mississippi and Alabama (and like North Carolina), Kansas hasn’t always been an exclusively hard right state.

Before North Carolina’s current state leadership launched its efforts to repeal so many of the progressive policies of the 20^th Century in the last couple of years, however, Kansas was already blazing a similar path. Led by one of the nation’s best-known arch-conservatives (Governor and former U.S. Senator Sam Brownback), Kansas has been slashing taxes and spending and pushing ultra-conservative social policies for several years now.

If ever there was a state that you’d think North Carolina’s current crop of conservative political leaders might want to check out, Kansas seems like an obvious choice.

Unfortunately, they’re not doing so (or, if they are, they’re only paying attention to the policy prescriptions and not the results).

This is from a recent study by the fiscal policy wonks at the nonpartisan Center on Budget and Policy Priorities Washington entitled “Lessons for Other States from Kansas’ Massive Tax Cuts”:

“Tax cuts enacted in Kansas in 2012 were among the largest ever enacted by any state, and have since been held up by tax-cut proponents in other states as a model worth replicating. In truth, Kansas is a cautionary tale, not a model. As other states recover from the recent recession and turn toward the future, Kansas’ huge tax cuts have left that state’s schools and other public services stuck in the recession, and declining further — a serious threat to the state’s long-term economic vitality. Meanwhile, promises of immediate economic improvement have utterly failed to materialize.”

Among the key findings in the report:

“Deep income tax cuts caused large revenue losses. Kansas’ tax cuts this year are costing the state about 8 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. State data show that the revenue loss will rise to 16 percent in five years if the tax cuts are not reversed.

The large revenue losses extended and deepened the recession’s damage to schools and other state services.  Most states are restoring funding for schools after years of significant cuts, but in Kansas the cuts continue….

The tax cuts delivered lopsided benefits to the wealthy…Most of the benefits went to high-income households. Kansas even raised taxes for low-income families to offset a portion of the revenue loss; otherwise the cuts to schools and other services would have been greater still.

Kansas’ tax cuts haven’t boosted its economy.  Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole.  The earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well…. [T]here’s no evidence that Kansas is enjoying exceptional business growth: the number of registered business grew more slowly last year than in 2012, and the state’s share of all U.S. business establishments fell over the first three quarters of last year, the latest data available.

There’s little evidence to suggest that Kansas’ tax cuts will improve its economy in the future….The latest official state revenue forecast, from November 2013, projects Kansas personal income will grow more slowly than total national personal income in 2014 and 2015.”

This should sound familiar

If this sounds familiar, it should; the Kansas story appears already to be repeating itself in North Carolina. Even as Governor McCrory talks repeatedly (and contrary to the situation right before all of our eyes) of a supposed “Carolina Comeback,” the data sound more and more Kansas-like.

Key indicators include:

Weak and faltering job growth – As Allan Freyer of the N.C. Budget and Tax Center reported last week:

“Despite falling unemployment rates, most of North Carolina’s metro areas are not creating enough jobs to fully recover any time soon from the job losses of the Great Recession, according to new jobless numbers released by the Division of Employment Security this morning. Nine out of the state’s 14 metro areas have yet to reclaim the jobs lost during the recession, and it will take three of them more than a decade to create enough jobs to return to pre-recession levels at the current rate of employment growth.”

Chronic budget shortfalls and underfunding of core services – Despite the current competing (and flawed) plans to raise teacher pay after years of neglect, North Carolina is clearly failing to repair the damage to public services and structures wrought by the Great Recession (much less to move toward a truly competitive posture vis a vis its competitors around the U.S. and the world).

Not only will this year’s tax cuts (and the ones slated to take effect in 2015) force painful cuts throughout the budget – including public education – they are sure to exacerbate the regressive nature of the state’s tax code and, thereby, the state’s burgeoning inequality.

As the BTC reported in May:

“As a result of tax cuts that primarily benefit the wealthy and profitable corporations, state policymakers have created a structural deficit in which revenues are likely to continue to fall short from what is needed to meet critical needs across budget areas.

The tax changes that policymakers enacted in 2013 will bring in less revenue each year than under the previous tax structure….

In Fiscal Year 2014-15, the consensus revenue estimate already projects a $191 million revenue shortfall. Estimates from the economic incidence model of the Institute on Taxation and Economic Policy (ITEP) suggest that the revenue shortfall could reach an additional $600 million for next fiscal year due primarily to the higher cost from personal income tax changes.”

Add to this the fact that North Carolina is now home to the nation’s fastest growth in the share of its population living in high-poverty areas, and the state’s once-widely-acknowledged reputation as a progressive, fast-rising state seems increasingly distant and fading fast.

Going forward

It doesn’t have to be this way, of course. There are numerous other states and nations that have recovered from the Great Recession (and lifted their people still further) by emphasizing the expansion of wise public investments rather than trying to cut their way to prosperity. These states and nations could serve still as role models and healthy rivals for North Carolina.

Unfortunately, for now, state leaders remain smitten with the Kansas model – even as they ignore the results it’s producing. Let’s hope that going forward, they at least start to pay attention to the entire story.

http://www.ncpolicywatch.com/2014/07/08/thank-goodness-were-not-in-kansasyet/