FOR IMMEDIATE RELEASE Contact:Paul Soutar

June 23, 2009

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KAC Calls for Tax Increase

A child advocacy group says the answer to fixing the budget gap in Kansas is more taxes.Taxpayer advocates and a top economist disagree.

State government spending in Kansas increased 42.2 percent from fiscal years 2004 to 2008 but that’snot enough according to a recent report by Kansas Action for Children. Their report calls for a state taxsystem overhaul to collect more taxes to close the budget gap between revenues and spending. Thereport claims the level of state spending hasn’t really increased because the tax burden is relativelyunchanged since 1960.According to the KAC report, “The long-term solution to avoid increasing budget gaps is to update andmodernize the Kansas tax system in a way that accurately reflects the current economy and generatessufficient revenues for state funding needs.”“We have a spending problem, not a revenue problem,” said Dave Trabert, president of the Flint HillsCenter for Public Policy. “It’s astounding that anyone could say that a 42 percent spending increase overa four-year period isn’t enough to meet the government’s needs! What about taxpayers’ needs?”The report says state and local taxes, as a percent of personal income, have increased from 10.5 percentin 1960 to 12.1 percent in 2008. The report says this 15 percent increase, “refutes claims that the level of spending has increased in Kansas.”However, personal income in the report’s calculation includes employer payments for social security,medical insurance and pensions —money not available to the individual to pay taxes. By using personalincome available to pay state and local taxes, the tax burden actually increased from 12.3 percent in FY1960 to 16.7 percent in FY 2008.When asked about the discrepancy, April Holman, author of the KAC report, said the data she used inthe report has been used for quite some time in reports like this and was never meant as a measure of disposable income.State Representative Jason Watkins, Wichita says Kansans know taxes have gone up because they see itin their family budgets. “If you compared Kansas income with spending, reasonable people would agreethat state spending has outpaced personal income by a large margin.”Dr. Art Hall, Executive Director of the Center for Applied Economics at the University of Kansas

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School of Business, also has fundamentaldisagreements with the report. “Governmentservices are not based on the economy, they’rebased on effective use of money for what isrequired.”“The unspoken part here is the implication thatwe’re spending all of these dollars as effectivelyas possible. And nobody would believe that.”According to Hall about 15 to 20 percent of taxmoney spent in every budget line nationwide iswasted.When asked about cutting spending to help close the budget gap, Gary Brunk, president of KansasAction for Children, said, “I think we have to have a database approach to policy effectiveness. Thereare plenty of programs that are ineffective and should be defunded. And there are others which work andneed to be funded better. I don’t think that process would reduce our need for funding though.”Funding for K-12th grade education accounts for more than half of state spending. With little or noperformance gains produced by dramatic increases in school spending, school choice may offer anopportunity for closing the budget gap according to Hall. “We might be able to get better performance.Giving all the increased money to the current structure isn’t logical when it’s possible we could bespending each one of these dollars twice as effectively. For example, does it make sense to have 300school districts?”“We’re in a down budget year so state government has to respond,” Watkins said. “The harder stategovernment tries not to act like the average household or business, the worse it’s going to be. You can’thave what you can’t pay for. Does that mean that some class sizes are going to be a bit bigger, maybe.That’s up to the districts to figure out.”Several organizations with strong lobbying efforts make it difficult for state legislators to initiate opendiscussions on alternatives to simply increasing school funding. “It’s not enough to raise taxes, theywant an ever-increasing share of people’s income,” said Trabert. “That’s a crystal clear insight on thebeliefs of big government proponents.”Competition is the answer according to Hall. “Without it you have no clue what’s going on. We have noconfidence that the dollars are spent well. So saying we need more is completely illegitimate reasoning.”Hall agrees that the state’s tax system needs to be updated but tax exemptions criticized by the KACreport are important and part of good tax policy. Kansas began to exempt personal property in the 1960s.“People were going nuts trying to determine the value of odds and ends.” In the 1980s businessinventories were exempted and recently business machinery and equipment was exempted.Hall thinks certain business exemptions are good for the state. “The more you tax something the less of it you get,” Hall said. “It’s good tax policy to not tax capital investment.” If a state taxes businessinvestment it will reduce business investment in the state and reduce job growth and will have lesspersonal income to tax.

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Kansas State General Fund Activity

(Dollars in Millions)