Tax increase less harmful than deeper cuts

Here is an article from the Wichita Eagle.  Please reference this study when you contact our legislators.  The full legislature reconvenes on Wednesday, April 28.

WSU study indicates tax increase less harmful than more budget cuts


BY TIM CARPENTER

Created April 19, 2010 at 3:33pm

Updated April 20, 2010 at 12:16am



The battle over Kansas economic projections intensified Monday with release of a Wichita State University study indicating closure of a state budget deficit with a $350 million tax increase would be less harmful to general economic vitality than an equivalent reduction in government spending.

The report adds to political debate raging in the 2010 Legislature on whether the state's financial deficit ought to be resolved by slicing at the edges of government spending or by imposing new taxes.

WSU's Center for Urban Studies and Kansas Public Finance Center outlined the influence on employment and economic output of a 1 percent increase in the state's retail sales tax. It follows a January report generated by a researcher at The University of Kansas' Center for Applied Economics.

"We decided to seek a second opinion," said Bernie Koch, executive director of the Kansas Economic Progress Council, which financed the WSU project. "This study shows there are no easy choices, but the solution that causes the least economic damage is a revenue enhancement."

The study coordinated by WSU economist John Wong started with the assumption a 1 percent hike in the sales tax would produce $350 million annually in new revenue. That is the amount of new tax revenue sought by Sen. Jay Emler, a Lindsborg Republican and chairman of the Senate budget committee.

According to the WSU analysis, adoption of the higher tax would reduce Kansas economic output by $363 million and curtail employment by 3,231 across the state. If the $350 million were realized by curtailing state expenditures, the WSU report says, there would be a loss of $420 million in output and force elimination 5,177 jobs.

Art Hall, of the KU Center for Applied Economics, said in testimony to a House committee a 1 percent sales tax increase would cost the state 19,000 jobs.

Democratic Gov. Mark Parkinson proposed to elevate the sales tax to 6.3 percent from 5.3 percent from July 1 to July 2013. It would generate an estimated $351 million per year.

Wong's analysis indicated the average Kansas household would pay an additional $266 in retail sales tax annually with a 1 percent hike. The most significant elements would be housing, $78; food, $69; and transportation, $43.

He said several factors argued in favor of the sales tax option.The new tax would be spread geographically across all Kansas consumers, while budget cuts would fall unevenly in regions and on individuals. The new revenue would be invested directly into the Kansas economy, he said. In addition, he said, people traveling in Kansas would pay a portion of the higher sales tax.

The Kansas Economic Progress Council, a not-for-profit group of businesses and organizations, sent a copy of the WSU report to Kansas legislators.