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The State of Kansas has frequently been a pioneer in championing major national movements that embrace and reinforce American freedom: • Kansas chose to be a “Free State” rather than a slave state, thereby strongly driving our nation into fighting a civil war for the noble purpose of ridding America of slavery’s evil curse. • Kansas chose to allow all children to attend the same public schools in the historical “Brown vs Board of Education” case, thus putting real teeth into the American civil rights movement. It has been the practice of Kansas leadership to compete with other states to attract out-of-state businesses to relocate to Kansas by paying them with special incentives. This is usually referred to as the “Public/Private Partnership”; however it is nothing more than “Crony Capitalism.” States which keep doing this claim it’s necessary in order to compete successfully against all other states. It’s a flawed policy, doing nothing more than taking investment capital from the majority of corporations in the private sector and redistributing it to a few friends of the political establishment. Borrowing a theme from the new best-seller by Newt Gingrich, “Pioneers of the Future, Prison Guards of the Past, and the Epic Battle That Will Decide America’s Fate” 1, it can be ventured that: • Kansas will have a chance to terminate the “Public/Private Partnership” as part of its socalled “Economic Development” agenda in 2014 and will then become a true “Free Market State”. A bill will be introduced in the Kansas Legislature this year to remove the tax credits for a few “Qualified Corporations”. It remains to be seen if “leadership” will allow the $millions in government subsidies going to a handful of chosen companies to continue. A real problem with public/private partnerships is that a relative few companies receive millions of dollars in economic incentives, while the great majority of other Kansas corporations do not. This is a classic case of big government using tax policy to pick winners and losers. Do these programs actually create jobs promoting economic development all across Kansas? It’s extremely unlikely. According to the Legislative Post Audit (LPA) Department’s report, the answer is highly questionable and the contention cannot be verified. Refer to the LPA report R-13-010 published in September 2013 2. The Summary Highlights 3 characterize these programs with the following observations: • The PEAK program allows companies to retain their employees’ state withholding taxes in exchange for creating new jobs or retaining existing ones. • HPIP encourages “qualified” companies to make capital investments and train their work forces. Companies that qualify according to the Kansas Chamber of Commerce receive sales tax exemptions and tax credits. • The Department of Revenue has not developed or used good management information to help it properly oversee the PEAK program: o Its data for the program were incomplete and inaccurate. o The department was more than a year behind in reporting PEAK outcomes to the Legislature. o The Department of Revenue’s tax incentive information also was incomplete. o The Department of Commerce has exceeded the statutory cap intended to limit the initial growth of the PEAK program. • The Department of Revenue’s HPIP tax credit data may not be completely reliable: o Companies are not required to report outcome data in order to receive their tax credits, and department staff do not audit or verify outcome data even when self-reported. o The department has not verified whether companies were reporting eligible training expenditures.
o The department was inconsistent in requiring supplemental documentation to verify HPIP wage requirement calculations. o The department allowed companies to report wages in such a way that could circumvent their minimum wage reporting requirements. After adding up the numbers, we find that: (1) the Department of Commerce has an annual budget of $150 Million; (2) the PEAK and HPIP programs recently subsidized the companies with $52 million of tax credits and payroll deductions; (3) a total of $200 Million to create jobs is tied directly to these incentives. The number of jobs actually created cannot be measured. Each of these programs has existed for many years, yet the resulting loss of revenue to Kansas is enormous (perhaps over $ 1 Billion), with questionable results. These programs lack transparency, creating the public perception that politicians use this system for their own benefit. They apparently don’t fear who knows about it, because they confidently believe that powerful political “Party Loyalty” leadership will protect them. Louis Woodhill, the brilliant economist who writes a weekly column in Forbes Online, has used accurate data to show clearly that the private sector creates seven times more jobs than the government does when it uses the same amount of investment capital. Furthermore, the private sector creates better paying jobs, which the government cannot do . For example: Koch Industries, with its headquarters in Wichita, is one of the largest privately held corporations in the world, and was not created by the government. Does Kansas have an obligation to use tax policy to create jobs for a few select companies? No! Any jobs created in this way invariably lead to the cycle of “systemic evil,” wherein “Party Leadership” grants favors to those who exert political influence, and these favors are tacitly expected to be paid back through “contributions” to be used in the re-election campaigns of the political “Leaders.” Crony politicians such as these are the folks who Newt Gingrich calls “Prison Guards of the Past.” “Pioneers of the Future” on the other hand are those courageous people in the Kansas Legislature who believe their jobs are defined by their oath of office and in the fundamental moral principles which they promised to uphold and govern with when they became elected. The large number of truly honorable people who serve in the Kansas Legislature, harbor great concern about the poorly veiled intimidation they often experience when interacting with their so-called “Party Leadership.” These genuine Pioneers are greatly esteemed by the citizens who elected them. Their agenda will be: • Terminate the HPIP and PEAK programs. • Audit the claim of any company that believes it has more benefits coming. • Give every business in Kansas a full 100% tax credit by taking our state corporate tax rate to zero. • Take a good look at the $150 million budget of the Kansas Department of Commerce. The behavior of Kansas’ political leaders during the upcoming 2014 legislative session must be put to the forefront in November as a major campaign issue, both in 2014 and in 2016. References: 1 “Breakout: Pioneers of the Future, Prison Guards of the Past, and the Epic Battle That Will Decide America’s Fate,” by Newt Gingrich. 2 Legislative Post-Audit Performance Report, “Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation in Kansas, Part 1. (R-13-010) Link 3 Legislative Post Audit Performance Report Highlights (H-13-010) 4 “Freedom, Economic Growth, and the FairTax,” by Louis R. Woodhill, December 16, 2011