Leah Aldrich

Financial Management 322

November 6, 2014

Kansas Faces Additional Revenue Shortfalls After Tax Cuts

Article Number 4

Earlier in June of 2014, the state of Kansas gained national attention by cutting income taxes. As a result of this action, the state lost an unexpected amount of revenue. At the end of their fiscal year in June, Kansas collected 330 million dollars less than the previous year and 700 million less than the year before that. While the Republican Governor of Kansas, Sam Brownback, thought that this would be an interesting and good experiment for the economy, it turned out to backfire in his face. Normally, the state only spends around 6 billion dollars annually from their general fund, that numbers as high as 700 million lost is quite a cut for Kansas. Companies like Moody’s and Standard and Poor’s were forced to cut Kansas’ credit rating this year. In addition to cutting the credit rating, numbers suggest that for the first three months of the fiscal year in 2015, the revenue gap in Kansas is permanent. “The state anticipated $578 million in personal income tax collections over the summer, but it took in just $524 million, an overestimate of more than 10 percent. That was nationally atypical; according to the Rockefeller Institute of Government, 14 states have published projected and actual monthly personal income tax receipts through September, and the other 13 all came within 5 percent of expectations.” (NYTimes). There are many reasons Kansas did not even come close to their expectations. One of the biggest downfalls for Kansas was the fact that they made itself the only state with a general personal-income tax. This exempts pass through income from tax. Instead of being taxed at a corporate level, companies like S-Corporations and Limited Liability companies are taxed based off of the owners income. As a result, it is easy for owners to cut their taxes and claim less of their income by turning it into profit. “I think there is major reshuffling of how people are paying their taxes,” says Duane Goossen, who served as budget director under the three governors who preceded Mr. Brownback, including the