Gov. Kelly says that the growth in the third quarter Gross Domestic Product (GDP) proves that her programs – primarily, subsidies coordinated by her Lt. Governor, David Toland – are working is absurdly deceptive. The Bureau of Economic Analysis (BEA) reported real (inflation-adjusted) growth of 2.3%, but about half the growth is in two categories – agriculture and retail – that are not recipients of the governor’s programs.
Aside from agriculture and retail, the growth over the second quarter was 1.1%. (The increase of more than 9% in media reports is an annualized number that assumes each of the next three quarters grows at the same pace.)
Quarter-to-quarter growth is not indicative of a trend, especially if some categories declined in the previous quarter. Retail, for example, declined 0.8% in the second quarter, so a good portion of the third quarter growth is just recouping prior losses.
Agriculture is a very cyclical category. Weather is a major factor that can cause boom or bust, and international market conditions routinely drive commodity prices up and down.
We get a much better picture of the economy by examining longer-term trends.
Four years of Gov. Kelly giving subsidies have Kansas at #38
Gov. Kelly took office in 2019, and her first four years showed very disappointing GDP growth of just 2.9%. Not each year but for the entire four-year period adjusted for inflation.
That four-year performance has Kansas ranked #38 among the states.
Kelly’s first four years also produced anemic private-sector job growth of just 0.9%, which is ranked #30. BEA won’t release 2023 numbers for several months, but the Bureau of Labor Statistics showed continued weak growth last year. Seasonally-adjusted private-sector employment in November 2023 (the most current at this writing) was only 0.6% higher than in November 2022.
People voting with their feet also show Kelly’s taxpayer-handout programs aren’t working, as the state had a net loss of more than 16,000 people in the last three years due to domestic migration (U.S. residents moving in and out of states).
These dismal performances cannot be blamed on COVID; the pandemic affected every state, and Kansas performed in the bottom half of states.
States with lower taxes have superior economic growth
Gov. Kelly gave Panasonic nearly $1 billion in taxpayer money, but she won’t give Kansans much of a break on their income taxes. She calls the Legislature’s 5.15% flat tax proposal a “non-starter” because she likes the current three-tier system that punishes families who have taxable income over $60,000 with a high marginal rate of 5.7%. All neighboring states’ top rates are below 5%.
A significant reduction in the top marginal rate or a 5.15% flat tax would make Kansas much more competitive and get the economy moving. The Sentinel’s parent company, Kansas Policy Institute, jointly published a paper with the Buckeye Institute that predicts the flat tax would generate $390 million in economic growth and $220 million in business investment in the first year.
Other research by Kansas Policy Institute shows that states with lower taxes have superior economic growth. For example, the nine states that don’t tax income recorded 207% GDP growth (not adjusted for inflation) between 1998 and 2021, compared to 150% for all other states. The no-tax states also had superior private-sector job growth (57% vs. 25%).
Kansas can easily afford a significant income tax cut. In fact, Kansas would still have a $4.5 billion surplus after four years of the proposed flat tax.
Kelly is proposing a tax package that would increase the standard deduction and exempt Social Security from state income tax, but she wants the high rates to remain. A flat tax is better, but if she really wants a program that will help the economy, she should add some rate cuts to the mix.
Otherwise, it will be déjà vu all over again after her second four-year term.