April 24, 2007

Don’t go on state spending spree

(This commentary appeared in the Wichita Eagle on April 24, 2007.)

So far, fiscal policy actions from the Kansas Legislature’s 2007 session are promising. The House and Senate compromise to phase out the business franchise tax over five years is a good step toward improving the competitiveness of Kansas’ business tax climate. Now that Gov. Kathleen Sebelius has signed the franchise tax elimination, Kansas will join a majority of states that do not levy this onerous weight on their economies.

The $5.9 billion state general-fund budget that the House and Senate also recently approved limits the growth in state spending to about 5 percent. Unfortunately, the “wrap-up session” will give lawmakers plenty of opportunity to break the fiscal piggy bank with excessive spending.

Kansas lawmakers have a choice to make. They can force the state government to live within its means. Or they can allow spending to increase at unsustainable levels, as previous legislatures have done. According to a recent analysis by the Flint Hills Center for Public Policy, lawmakers have historically been unsuccessful at controlling spending. Inflation-adjusted state spending has grown more than 50 percent since 1992.

If Kansas lawmakers approve runaway spending increases in the upcoming wrap-up session, they will deal a major blow to future economic development efforts. Every surplus dollar that is spent today will not be available next year for additional growth-enhancing tax-relief measures.

Of course, some will always bemoan tax relief for businesses, because they see it as a giveaway to “wealthy corporations.” But they neglect one simple economic fact: Businesses don’t pay taxes, people do. The truth is, when we tax businesses, the burden falls right back on individuals.

If Kansas wants to compete regionally for new business investment and jobs, taking steps such as eliminating the franchise tax to improve the business tax climate is a necessity. Excessive government spending, however, eats away funds that could be used for next session’s tax relief.

In recent years, most states have experienced surpluses. States wanting to nurture growth are applying at least part of their surpluses to lower tax rates. Kansas should be among those states taking action to ensure their economic well-being.

The upcoming choice between overspending and fiscal responsibility is not about Republican versus Democrat or left versus right. It’s a choice between up or down for Kansas. To become competitive in the global business environment of the 21st century, Kansas must continue to improve the business tax climate. And to ensure that funds are available for this pro-growth tax reform in the future, lawmakers must be responsible on the spending side of the fiscal equation today.

Jonathan Williams is an economist with the Tax Foundation in Washington, D.C., and a fellow with the Wichita-based Flint Hills Center for Public Policy.