On Taxing and Spending (Cuts)

Members of the Kansas Legislature head back to Topeka next week for a session finale that is sure to be a super imbroglio. (That's not the word I wanted to use, but this is a family blog. I just know scores of 4th graders are pouring over my scribblings.)

Anyway, the big item on the legislative agenda will be (again) filling an enormous budget hole -- projected at the time of this scribbling to be $300 million over the next 15 months. 

Some members of the legislature want to close an unintended consequence from the 2012 tax bill. 2012's HB 2117 encouraged businesses to restructure to LLCs to avoid paying income taxes. No one can blame business owners for a savvy business decision, and I certainly don't blame these poor souls, many of whom were summarily overtaxed for decades, for wanting to hang onto the tax advantage. However, these legislators have a point – this LLC tax advantage is creating a situation in which the same work is taxed differently.

It’s also a very strange issue in which the western half of the state is seeing greater advantage from this loophole than the folks who live in the populated areas. So there’s an underlying agricultural vs. urban economy issue. Here’s what I mean: a farmer who once had his income taxed, can now restructure his farming business as an LLC and avoid paying any income tax. Urbanites can do this too, but it’s a little less common. For example, a hair stylist can choose to work for a salon or someone else, which results in having to pay an income tax. OR, the stylist can hang a shingle, form an LLC, and pay none.

It’s a conundrum.

Meanwhile, there are other forces creating undue pressure on the state budget. Ironically, low gas prices are wreaking havoc on the state’s revenue. As every driver knows, the state takes 24 cents from the sale of every gallon of gas. When the price drops, often due to decreased demand, the government receives less!

A lot of big government types are bemoaning the loss to state revenues, and if we’re being honest, I have to refrain from screaming bad words at these people. I care way less about the state revenue feeding trough than I do about the people who must fuel their cars to get to work and must buy food (with fuel costs built in) to feed their families than I care about the poor, whining bureaucrats getting fat off the gas tax. I’m sorry, but I just can’t seem to find a single tear for those people. I can’t. I won’t. Don’t ask.

The other giant elephant sucking the life out of the state budget is, of course, school funding. In a feat of epic proportions, Gov. Sam Brownback and the state legislature came up with a public indoctrination camp funding plan that maintains existing school funding levels and “keeps schools open.” (Seriously, the Republicans sent out memes and newsletters announcing the plan that would “keep schools open,” as if the members of the Kansas Supreme Court were going to close schools under some mythical authority heretofore unknown. The suggestion should have been thoroughly mocked and scored. Instead, Republicans took the bait and pretended that the KS justices could close the schools. PR fail.)

So, conservatives maintained school funding. The state will spend more than it ever has before – though less than projections and therefore less than budgeted – and this automatically for some, means the solution is increasing revenues by eliminating an unintended consequence in a 2012 tax bill.

Closing the LLC-loophole is necessary, but this loophole should be closed based on sound fiscal policy – not based on the wailings of liberals who just want to take all the money and give it to their pet causes. The loophole was an unintended consequence. The loophole is allowing some income earners to unjustly subsidize others who do the exact same job. The loophole is forcing the urban part of the state to subsidize (to a greater extent than ever before) the rest of the state. These are reasons to close the loophole.

The state is not broke. The state overspends. When revenues don’t meet projections in my own budget – which has happened – the answer is to cut spending. Immediately. In my household, that may mean buying less lean beef, or worse, the beef sold in tubes. Gross.

Or it may mean cutting my cable package, driving the more fuel-efficient vehicle more often than the big one, cutting monthly gym membership, or eating out less frequently. It may even mean adding a second job, selling stuff on Ebay, or asking for a raise. But if I don’t get that raise, you won’t see me kicking and screaming and whining.

The liberal, big government answer isn’t asking for a raise. It’s demanding that everyone else pony up more at the point of a gun. There are no efforts to create greater efficiencies – ahem. School consolidation. There are no attempts to pare down an already bloated budget. It’s just hand over your wallet, all day every day.

Gov. Brownback has announced a few options for filling the budget hole. Brownback’s preferred choice is essentially a payday loan, using the state’s tobacco settlement. Meh. I see one positive to this potential solution: If the tobacco settlement is used to fill today’s budget hole, it can’t be used tomorrow to further bloat government. This is what typically occurs when government somehow gets a windfall. The bureaucrats use the windfall for some recurring budget item, like adding staff or increasing salaries, and all of a sudden when the windfall runs out, taxpayers are stuck with a bill that can’t be eliminated.

The problem with using the tobacco settlement to fill the budget hole, however, is that it doesn’t really solve the budget problem. It’s a short-term solution for something that requires a long-term fix. (Ahem. Less spending.)

The Gov’s second option would push back pension funding. We have a pension problem already. This exacerbates it while simultaneously kicking the can down the road. Dislike.

A third option is across the board cuts to state government. This plan makes the most sense, solves the problem long term, and does what should have been done back in 2012 when legislatures enacted the tax bill with the unintended consequences.

I sincerely hope that whatever agreement legislators and the Governor come to – they enact cuts as well. Cuts should be a major part of the solution, because the problem is overspending.

All three Brownback proposals include taking $70 million from the state highway fund this year and another $115 million next year. This will mean delaying some projects. To which I say: Thank heavens. Last summer traversing the highways around the Jo was like a trip through Purgatory. It was impossible to get ANYWHERE without weaving and sitting in orange cones. If last summer was Purgatory, this summer will be hell. It’s going to be hard for me to lose any sleep over one season without dodging orange cones. (We’re number five in the nation in highways. Yay? Kansas will be just fine if we lose a few slots.)

Legislators return to Topeka on April 27, and they’re going to face a hailstorm from the Whining Whiners Who Whine™. This is likely to be a very short wrap-up session, as I have it on very good authority that legislators are going to be in a super hurry to get out of Topeka before May 1 when April’s revenue numbers are released.

Conservatives should be reminding anyone who will listen that this “budget hole” is really a projection shortfall. The state is spending more money than ever before, and that’s a story that needs to be continually told.