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OPINION

Framework for Growth, the Kansas economic development plan, ignores reality

By Dave Trabert
Special to Gannett Kansas
Dave Trabert

Kansas is in its fifth straight decade of economic stagnation and falling further behind on job creation and economic growth. But the state’s new economic development plan — Framework for Growth — has many of the same elements that frankly haven’t produced growth, like subsidies and government spending programs.

One of the first steps in developing a strategic plan is asking questions like "what are our major competitive disadvantages?"

The answers must come from customers, not the people developing the plan. It is essential to know how the rest of the world views Kansas compared to other states; otherwise, the plan will likely reflect what government officials want customers to have instead of giving them what they need.

Kansas has extreme disadvantages on multiple tax issues, but that’s ignored in the Framework for Growth. Kansas has the eighth-highest state and local sales tax rate in the nation, and the highest effective property tax rate in the nation for commercial property in rural areas; urban area rates are among the highest in the nation.

Marginal personal income tax rates are about average, but that’s not a competitive advantage, and only 18 states have top marginal corporate income tax rates than Kansas.

The Kansas Chamber’s recent statewide business poll shows the importance of reducing taxes. The top five issues identified as most important to profitability are lower taxes on business, managing health care costs, decreasing regulations and mandates, limiting government growth, and reducing energy costs.

None of these issues are addressed in the Framework for Growth.

A 2018 article released by the D.C. branch of the Federal Reserve and shared by the Tax Foundation examined how state tax policies impact employment at start-ups. Researchers found that the corporate tax has the most robust identifiable impact on start-ups.

Kansas, like all states, is wholly dependent upon jobs from new establishments for job growth. In fact, Arthur Hall, at the University of Kansas, says U.S. Census data shows Kansas wouldn’t have had a single year of private job growth since 1984 if not for jobs created by new establishments.

Yet Gov. Kelly increased effective corporate tax rates when she vetoed 2019 legislation that would have prevented unintended increases resulting from federal tax relief efforts in 2017, like having to pay tax on income that isn’t earned in Kansas.

Hall also provides insight on one of the causes of economic stagnation, writing in a 2006 paper, “The Kansas economy lags both the nation and the region in terms of per-worker productivity and the growth rate of per-worker productivity. This anomaly began about 20 years ago….”

He now attributes the productivity lag to a 1986 constitutional amendment that changed how property tax was assessed. The impact was overall revenue neutral to government, but there were devastating shifts in tax burden among individuals and businesses.

These tax examples are just a few of the significant barriers to economic growth that are swept aside in the Framework for Economic Growth.

There are some worthy ideas in the plan, but their value is greatly diminished by not removing multiple competitive disadvantages from the state’s resume.

Dave Trabert is the chief executive officer of Kansas Policy Institute.