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Downgrade of Kansas Bond Rating Offers Another Warning to Wisconsin

12:13 pm in Uncategorized by WI Budget Project

One more Reason not to be like Kansas

Kansas State Capitol

Tax cuts continue to damage the economy of Kansas.

A bond rating agency has downgraded its rating of Kansas’ creditworthiness, citing revenue reductions from tax cuts and slow economic growth, among other factors.

A few weeks ago on the Wisconsin Budget Project blog, we highlighted how massive tax cuts in Kansas have failed to boost that state’s economy, while harming schools and other services. (Don’t Be Kansas: Impact of Massive Tax Cuts on Kansas Offers a Warning to Wisconsin, 3/27/14.)

What has happened in Kansas should serve as a cautionary tale for tax-cut proponents in Wisconsin, rather than a model.

Now there is additional evidence that enormous tax cuts have not had the result lawmakers intended. Moody’s downgraded Kansas’ bond rating, noting the following areas of concern:

Kansas’ relatively sluggish recovery compared with its peers, the use of non-recurring measures to balance the budget, revenue reductions (resulting from tax cuts) which have not been fully offset by recurring spending cuts, and an underfunded retirement system for which the state is not making actuarially required contributions…The phasing in of increasing income tax cuts, along with rising pension costs, will continue to exert pressure on the budget.

States with lower credit ratings face higher costs when borrowing money for large building projects, such as roads.

There are many similarities between what has happened in Kansas and what has happened – and continues to happen – in Wisconsin. Like Kansas, Wisconsin has pushed through large tax cuts that  helped the rich much more than most state residents. Both states recently raised taxes on low-income families working to climb into the middle class. And like in Kansas, tax cuts haven’t spurred job growth in Wisconsin (Tax Breaks Abound in Wisconsin, but Job Growth Remains Slow, 5/2/14).

There is no indication that a downgrade for Wisconsin is in the works, but the downgrade of Kansas’ creditworthiness should give pause to Wisconsin lawmakers. Tax cuts haven’t done much to create jobs, in either Kansas or Wisconsin, and have led to unintended negative consequences.

Rather than implementing new tax cuts, Wisconsin lawmakers should get invest in the basic building blocks of economic growth: good schools, safe communities, and a solid transportation network.

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Don’t Be Kansas: Impact of Massive Tax Cuts on Kansas Offers a Warning to Wisconsin

12:04 pm in Uncategorized by WI Budget Project

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Kansas State Capitol

Deep tax cuts have devastated Kansas’ schools and social services.

Wisconsin lawmakers advocating for more tax cuts should consider the example of Kansas, a state that has pushed through enormous tax cuts and that has been held up by tax-cut proponents as a model worth replicating.

The massive tax cuts in Kansas have deepened the damage done to schools, colleges and universities, and other key services by the recession and have failed to improve Kansas’s economic performance, according to a new report from the nonpartisan Center on Budget and Policy Priorities. Kansas should serve as a cautionary tale for Wisconsin, not a model.

The tax cuts passed in Kansas are larger than the ones that have been passed in Wisconsin starting in 2011, but otherwise they share many characteristics. In both states, tax cuts helped the rich much more than most state residents, making income inequality worse. And both states have recently raised taxes on low-income families working to climb into the middle class.

We already know that a series of tax cuts in Wisconsin have done little to improve the state’s economy. Despite claims that cutting taxes would spur job creation, Wisconsin continues to lag the national and regional averages in job growth. Personal income has grown more slowly than the national average, according to new figures released this week. The loss of revenue caused by the tax cuts contributed to deep cuts in state support for schools, ranking Wisconsin among the states that have made the steepest cuts to education. This loss of investment in Wisconsin’s future workforce will have long-term damaging effects on the economy.

Like Wisconsin, Kansas has failed to receive an economic boost from tax cuts. Job growth in Kansas has been slower than the national average since the tax cuts took effect and its labor force has actually shrunk during that period. The number of new businesses in Kansas grew more slowly last year than in the year before the tax cuts took effect.

The huge tax cuts in Kansas have left the state’s schools stuck in the recession and continuing to decline. School districts across the state have had to layoff teachers and counselors, and cut programs for students since the recession hit.

Instead of following the example of Kansas, policymakers in Wisconsin should acknowledge that high-quality schools and universities as well as other key services are a crucial building block of economic growth and help make communities healthier, safer and more livable – all important factors in attracting businesses and boosting long-term growth. By focusing on tax cuts and shortchanging other priorities, Wisconsin, Kansas, and other states that follow in the same footsteps are setting themselves up for trouble down the road.

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