June 24, 2024

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Cato Institute: Governor Kelly earns a “C” in tax-and-spend policy

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Kansas Governor Laura Kelly portrays herself as supporting sound fiscal policy as she campaigns for re-election, but Cato Institute gives her a “C” grade in their Fiscal Policy Report Card on America’s Governors, 2022. 

Cato gives an “A” to Governors Kim Reynolds of Iowa, Chris Sununu of New Hampshire, Pete Ricketts of Nebraska, Brad Little of Idaho, and Doug Ducey of Arizona.  Kelly’s “C” is just two points above the cutoff for a “D.”  The bottom-dwellers include Tim Walz of Minnesota, Tom Wolf of Pennsylvania, J. B. Pritzker of Illinois, Gretchen Whitmer of Michigan, Phil Murphy of New Jersey, Kate Brown of Oregon, Gavin Newsom of California, and Jay Inslee of Washington, all of whom received an “F.”

The libertarian think tank summarized its findings:

“The nation’s economy was damaged by the pandemic in 2020, but it bounced back strongly and grew until the end of 2021. The rebound generated a large tax revenue increase for state governments, which also received a flood of pandemic aid from the federal government. The states used soaring revenues to expand their budgets and provide individuals and businesses with temporary or permanent tax cuts.

“That is the backdrop to this year’s 16th biennial fiscal report card on the governors, which examines state budget actions since 2020. It uses statistical data to grade the governors on their tax and spending records: governors who restrained taxes and spending receive higher grades; those who substantially increased taxes and spending receive lower grades.”

Grades were assigned based on seven variables:

Spending

  • Average annual percentage change in per capita general fund spending proposed by the governor.
  • Average annual percentage change in per capita general fund spending enacted.

Revenue

  • The average annual dollar value of proposed, enacted and vetoed tax changes. This variable is measured by summing the reported estimates of the annual dollar effects of tax changes as a percentage of a state’s total tax revenues. For example, vetoing a $50 million tax increase would boost a governor’s score the same amount as approving a $50 million tax cut.

Taxation

  • Change in the top personal income tax rate approved by the governor.
  • Change in the top corporate income tax rate approved by the governor.
  • Change in the general sales tax rate approved by the governor.
  • Change in the cigarette tax rate approved by the governor.

Co-Author Chris Edwards, the Kilts Family Chair in Fiscal Studies at Cato, profiles Governor Kelly:

“Kelly came into the governor’s office saying she would stabilize the budget after her predecessor, Sam Brownback, had wrecked it. But Kelly and Kansas have benefited from strong revenue growth, which fueled the general fund budget to expand 27 percent between 2019 and 2023.

“Kelly has a mixed record on taxes. The 2017 TCJA (Tax Cut and Jobs Act) broadened the income tax base and boosted revenues because the state automatically conforms to changes in the federal code. Republicans in the legislature called for offsetting the higher state tax revenues with tax cuts. But Kelly vetoed bills to offset the tax increases, even though she had pledged not to raise taxes.

“Heading into 2022, Kelly proposed a one-time tax rebate of $250 for all residents, but the legislature rejected the plan. The proposal was not included in the state budget that passed in April, but Kelly continued to press the legislature to pass the rebates later in the year.

“The governor called for eliminating the state’s sales tax on groceries, and in 2022 she signed into law HB 2106, which phases down the 6.5 percent grocery tax to zero by 2025. Eliminating the grocery tax will save Kansas households hundreds of dollars annually.”

The Cato report doesn’t include the governor’s 2019 veto of legislation to eventually eliminate the sales tax on groceries because it examines actions in 2020 and beyond.

The report card concludes by peering into the future:

Current state budget surpluses may diminish if the U.S. economy continues to stagnate. Fortunately, most states have built large “rainy day” funds, which they can tap if tax revenues fall in the months ahead. Governors should focus on pruning low-value programs from budgets and pursuing growth-enhancing reforms such as income tax rate cuts.”

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