Kansas: Continued Budget Hemorrhaging

With lagging economic growth, and the massive tax cuts, revenues are falling below projection. From The Topeka Capital Journal today:

Tax collections by Kansas state government in September fell a sobering $21 million below projections to mark the fourth time in the past six months revenue failed to match targets, officials said Tuesday.

The state’s individual income tax receipts dropped $42.4 million beneath the estimate set earlier this year by a team of state economists and officials in Gov. Sam Brownback’s administration. Oil and gas tax revenue also failed to keep pace with the tax blueprint.

The revenue crater would have been twice as deep had it not been for a $21.5 million, or 33 percent, surge in corporate income tax receipts. It is unclear why that number moved so much to the positive side.


… the September report released by the Department of Revenue provided evidence the state could burn more rapidly through cash reserves and force the 2015 Legislature to take a scythe to the budget in January. The $21 million shortfall in September was 3.9 percent less than projected.

If the economy doesn’t grow rapidly and lawmakers don’t amend the budget, the Legislature’s nonpartisan research staff predicted the state would be confronted by a $238 million budget shortfall in July 2016. The hole would be larger if the state didn’t meet current tax revenue projections.

According to the article, the Brownback reelection campaign declined to comment on this report.

This account confirms the idea that reductions in tax rates reduce tax revenue, at least for the tax rates originally prevailing in Kansas. Furthermore, cuts in government spending appear to reduce economic activity. See this critique of the New Classical Kansas conjecture.

26 thoughts on “Kansas: Continued Budget Hemorrhaging

  1. dilbert dogbert

    Please remember that Brownback’s policies can’t fail they can only be failed. How many Friedman Units longer does Kansas hold the course? Two, One and onehalf, Three or Four? When is Brownback up for re-election? A history of failures did not prevent Bush from becoming president.

  2. PeakTrader

    Let’s be honest, the Obama-Reid-Pelosi leadership (with a 60-vote Senate) in the first two years didn’t achieve a recovery after the severe recession.

    Perhaps, the best they did was put a floor on the economy.

    The U.S. government added over $5 trillion in debt in five years and all we got was a deep depression.

    We should’ve closed the output gap years ago, with the Fed completing a tightening cycle.

    1. PeakTrader

      Optimism is good.

      However, there’s been a lot of dishonesty or denial, while rigid ideologues put more lipstick on this pig.

    2. baffling

      “We should’ve closed the output gap years ago, with the Fed completing a tightening cycle.”

      so raising interest rates in the recession would have goosed the economy? even raising them today would goose the economy? this obsession with tightening is maddening!

      1. PeakTrader

        Baffling, where did I say interest rates should be raised in a recession?

        We didn’t have a recovery and didn’t tighten the money supply.

        1. baffling

          peak, i think you fail to understand what type of recovery should be expected out of the type of financial crisis we experienced. this was not a recession caused by a business cycle event-much different. on the other hand, we more than put a floor under the economy. compare today with 2009 for a reality check. or do you believe gdp would be higher today without the government stepping in to take over for the contraction in private spending? there was no crowding out of private funds over the past 5 years.

          when you reference the fed completing a tightening cycle over the past five years, what do you mean?

          1. PeakTrader

            Baffling, I think, you fail to understand what’s needed to close the output gap.

            Every recession is different.

            That’s why a substantial tax cut was even more important in the last recession.

            I’ve explained it before.

  3. Ricardo

    Perhaps Menzie could give us an analysis.

    “Pricetag for U.S. airstrikes on Islamic State already exceeds $1 billion”

  4. Dr. Morbius

    With all things tax, the devil is in the details.

    When Kansas passed its now famous business income tax exemption, the Kansas Dept. of Revenue referenced the then-current levels of relevant business income to determine revenue loss, but did not predict future tax behavior changes (what happened to that GOP-favorite: dynamic budget scoring?).

    When you look at the mechanics of determining this exemption you see on Kansas Schedule S that all income reported on federal 1040 Schedule C (Profit or Loss from Business–sole proprietorships, sole member LLCs and LLPs), Schedule E (supplemental income–rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs,) and Schedule F (Farm Income) is exempted from Kansas state income tax.

    If a Kansas client approached me with a medium-sized business operating as a federal C Corp, wanting to minimize the taxes for the owners and top executives, this is what I’d do: Transfer all intangible and tangible assets to a separate LLP in an exempt corp. transfer, and at the same time organize a separate LLP management firm with compensation to come through a distribution of profit to the owners and executives. All perfectly legal. Suck out all the profits from the operating company through management fees and royalty payments which will then appear on the tax returns of the owners as Schedule S income–exempt from all Kansas taxes.

    This can be accomplished with a few days legal work, and for some reason the Kansas DoR failed to foresee that the incentive of total tax exemption might encourage such reorganizations. There are plenty of other tricks to turn executive compensation into business income that I won’t describe here, but suffice it to say Kansas should have anticipated that all executive compensation as well as all business income for closely-held firms would vanish from their tax base. Only regulated industries, banks, and publicly traded corporations remain locked into paying taxes–Koch Industries is closely held, I wonder what business entity reorganizations have occurred to exempt the Koch family from Kansas income taxes?

  5. dilbert dogbert

    Just want to add Kansas Jack’s comment from over at Delong’s:

    Kansas Jack said…
    Which reminds me…I may need to change my future monicker on this blog…I’m being recruited by another university in a slightly bluer state. 2nd such call in the last 6 months. I’m not alone. I think people know we’re scared of the future here in Brownbackistan. If I am lucky enough to get the offer, I’m hoping to postpone decisions until after November 4th.

    Brownbackistan made me laugh.

  6. PeakTrader

    The purpose of cutting taxes is not to raise tax revenue.

    It’s to raise GDP.

    As GDP rises, tax rates are low.

    When the economy fully recovers, then tax rates can be raised, to maintain sustainable growth.

    1. Dr. Morbius

      And if, as seems the Kansas case, GDP doesn’t recover? What then? Perhaps those who now enjoy complete tax exemption will say “Gee, we owe you all a Coke”?

      1. Ed Hanson


        For whatever problems Kansas may have, it is not recovery of GSP. The latest quarterly numbers, the 4 quarters of 2013, show Kansas as beating the US totals 3 out of the 4 quarters. The last quarter, IV 2013, has Kansas at 3.1% annual growth, second in its region and 19th overall in the US. Just for fun of it, it beats the heck out on Minnesota who’s quarter was 0% and 49th overall.

        This year, Kansas has recovered from the serious drought, changing from a very poor winter wheat crop to a record or near record harvest of corn and soybean as well as other crops. Lower prices being countered by big production of the crop producers, with the lower prices being excellent for the important cattle and hog industry.


        1. Dr. Morbius

          Is that the same report that shows:

          Iowa 2.9% growth
          Minnesota 2.8% growth
          Nebraska 3.0% growth
          South Dakota 3.1% growth
          Colorado 3.8% growth
          Oklahoma 4.2% growth??????

          Oh yeah, you are doing better than Missouri (0.8% growth)

          Congratulations on being 2nd to the last in your region.

      2. PeakTrader

        Dr. Morbius, perhaps, the good people of Kansas should pray for rain, demand for aircraft (outside of Kansas), or a bigger tax cut ($5,000 per worker may do the job).

        1. Dr. Morbius

          Unfortunately, a $5,000.00 per worker tax cut would cost about $5-billion for its 1,400,000 employed, which would mean the state would zero out: all state funding for elementary & secondary school funding; higher education; public assistance and medicaid. Leaving only corrections, general government, and some other small programs.

  7. Ricardo

    Menzie wrote:

    “This account confirms the idea that reductions in tax rates reduce tax revenue, at least for the tax rates originally prevailing in Kansas. Furthermore, cuts in government spending appear to reduce economic activity.”

    Menzie, you should ask for a refund on your Supply Side Economics course (Your Keynesian courses too, but that is another issue.)

  8. Patrick R. Sullivan

    ‘… a $21.5 million, or 33 percent, surge in corporate income tax receipts. It is unclear why that number moved so much to the positive side.’


    1. Menzie Chinn

      Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:

      Canada … had a less severe depression than the USA.

      And this statement is wrong.

  9. JBH

    The only thing that’s hemorrhaging is the usage of brains in America. Ebola is the topic du jure. This threat is growing exponentially. I saw a graphic that potentially 1.4 million may be infected by January 2015. Unless the US closes its borders and brings pressure on West African countries to close theirs to outbound travel, this epidemic is going to go global. Mark my words. This is a microcosm of a long list of like items – though this particular threat is quite immediately pressing and potentially a black swan event. This is way beyond econometric modeling. The variables and unknowns are far too many. What is it about this event and the many others that you don’t even know you don’t know? How will Ebola affect US GDP going forward? At least I pose the question.

    All of this is within the context of ordinary Americans’ confidence in government at a modern low. And moving lower at an accelerating rate! This goes way beyond preoccupation with the liberal-conservative divide, which is all so often the thin gruel here on Econbrowser. If our government or CDC or whomever or whatever says x cases, you can bet the true number is a multiple of x. The government’s propaganda and disinformation disseminated through the media is itself a virus.

    On all too many topics, this site is a poster child for the hackneyed tale of the drunk looking under the lamppost for his lost keys. Kansas: Continued Budget Hemorrhaging, indeed!

    1. Dr. Morbius

      Thin gruel? I’ve always thought of it more like a really spicy bean burrito, or perhaps a nice sizzling steak (you know with those browned grilled onions and mushrooms, yum!)

      Ebola is the topic de JOUR, indeed. However, the U.S. is not West Africa; go there sometime–electricity is not dependable, neither is your cellphone; and bring your own water. You should be worried about the resurgence of air-borne diseases: measles, diphtheria and pertussis, and stop panicking over a hard-to-spread disease like ebola. Funny how the right wing had no concerns whatsoever about the outbreak of cholera in Haiti after the earthquake in 2010. No calls for quarantine, no FOX fear-mongering. Well times have changed, and now even diseases in 3rd world countries can be blamed on domestic liberals.

      Also, “hackneyed” doesn’t mean what you think it does. A proper use would be: the hackneyed claim by Paul Ryan that tax cuts increase government revenues is repeated often by republicans.

  10. AS

    Not trying to be argumentative, but the man from Liberia flew from Belgium to the US from a flight originating in Africa. Do we close all traffic from other countries to the USA? Maybe better airport screening could help. Seems like we need stepped-up funding of research (private & public) to develop vaccines or cures for various diseases that may be imported to the USA intentionally or unintentionally.

  11. Ricardo


    I am still waiting for you to admit that you stated there should be no limit to spending on SNAP.

    1. Menzie Chinn

      Ricardo: I’m happy to admit; when have I ever denied? Please provide a specific URL. Just like I would never put a specific limit on defense spending — if the circumstances warranted (e.g., WWII), then one would need to spend what was needed. I can’t figure out what you’re trying to get at.

      In any case, currently 0.4% of GDP is devoted to SNAP expenditures. In 1981M06, under President Reagan, SNAP expenditures accounted for 0.34% of GDP. In either case, it’s not as if SNAP is anywhere near 100% which is what I think your fevered mind is trying to convey…

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