Thursday, June 18, 2015

Kansas City, a Laboratory for Kansas Tax Cuts: Data Indicate Tax Reductions Stimulated Growth

The Kansas City Metropolitan area is divided into two portions, Kansas and Missouri. This makes KC a good laboratory to gauge the effectiveness of economic policy changes made on one side, but not the other. For example, what do metro growth numbers have to say about the wisdom of the 2012 and 2013 Kansas tax reductions?

Post Tax-Cut Earnings: From March 2012 to March 2015, the Kansas fraction of the metro grew its average weekly wages for private workers by 6.7%, which was higher than the Missouri side's growth of 5.6%.

Post Tax-Cut Job Performance: During this same time period, the Kansas side of the metro experienced private job growth of 7.5% compared to a much lower 4.4% for the Missouri segment of the metropolitan area. Both sides of the metro area reduced the number of government workers, but the Kansas side cut 4.8% of its government jobs, while the Missouri portion shrank 1.0% of its public jobs. Not surprisingly, Kansas public workers are raising a ruckus, claiming an economic calamity.

At the state level, 2012 to 2014 personal income growth for Kansas surpassed that of Missouri and Nebraska, but trailed Colorado and Oklahoma. But even after the tax cut, the Sunflower state's 2014 state taxes as a percent of personal income were still higher than all of its neighbors of Colorado, Missouri, Nebraska and Oklahoma.

Post tax-cut data from Kansas City, the state of Kansas, and its neighbors support the hypothesis that the tax reductions improved the state's relative economic performance. However critics of the reduction correctly argue that this data, as presented here, shows correlation, but does not prove causation. Too bad in 2015 Kansas politicians retreated, and once again boosted taxes before investigating the impact of the 2012 and 2013 cuts.

Ernie Goss

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