Recent reports that the Brownback administration is ‘not ruling out’ increasing the state sales tax in order to implement income tax reform are extremely disheartening. It’s not just the consideration of bad economic policy that’s disturbing, but also that it’s seen as an alternative to making government operate more efficiently. We also understand that some self-identified fiscally conservative legislators are pushing the administration.
Taxpayer-funded lobbyists and entrenched bureaucrats have positioned spending reductions as cuts to essential services, but that is absolutely not necessary. Government can provide essential services at a lower cost, like many other states. According to the National Association of State Budget Officers, Kansas spent more per-resident in FY 2011 than twenty-seven other states. In fact, Kansas spent 26 percent more per-resident than the states with no income tax in 2011 and taxpayers would have saved $1.2 billion by operating as efficiently as those states.
Kansas Policy Institute published a dynamic analysis of the tax reform bill, which shows that a onetime spending reduction of about 8.5 percent is all that is needed to implement the new plan. Spending could grow thereafter at the same pace as revenue and there would always be balanced budgets and healthy ending balances. Kansas doesn’t have to be as efficient as those states, just close the gap.
The first step is telling agency heads that no service reductions will be entertained unless the agency stipulates that such service is not effective or necessary. Cutting services to avoid having to make better use of taxpayer money is irresponsible. Some of the efficiency savings comes from not wasting money on non-essential things like spending several hundred thousand dollars to buy memberships in national organizations and eliminating some of the $10 million spent annually on overtime. Other savings comes from structural change, like centralizing IT, cell phone service, payroll and similar functions instead of allowing each agency to do what it wants. There are tremendous buying power advantages with negotiating fleet deals on car rentals, hotels, etc. You’d be amazed at how little of this is done in government.
Privatization also has tremendous potential to retain (or improve) services at a lower cost. Anything that does not have to be performed by a government employee should be put out to bid. Building and grounds maintenance, printing, IT, payroll, risk management and health care are examples of functions that should be considered for privatization. Stringent oversight, performance-based review and an open bidding process ensure privatization can be done well and avoid of scandal. Having services provided by the private sector also helps reduce the KPERS unfunded liability, which is now realistically north of $15 billion.
A sales tax increase could also wipe out the benefit of reducing marginal tax rates on some low income people. The point of tax reform is to reduce the tax burden on individuals and employers, not shift it.
Make no mistake about it – any effort to raise the sales tax rather than make state agencies operate more efficiently is purely about politics, not policy. We encourage the Governor and Legislature to take a pro-taxpayer stance and tell the bullies who don’t want government to operate efficiently to back off and be fiscally responsible.
Dave Trabert is President of Kansas Policy Institute. He is a frequent speaker to business, legislative and civic groups and also does research and writes on fiscal policy and education issues.