Archive for Tuesday, April 24, 2007

Guest Commentary: A time for choosing: Legislature is on track

April 24, 2007

So far, fiscal policy actions from the Kansas Legislature's 2007 session are promising. First and foremost, the House and Senate compromise to phase out the business franchise tax over five years is a good step towards improving the competitiveness of Kansas' business tax climate. The antiquated franchise tax is a relic of 20th century tax systems. If Gov. Sebelius signs the franchise tax elimination, Kansas will join a majority of states that do not levy this onerous weight on their economies.
The $5.9 billion state general fund budget that the House and Senate recently approved also displays a good initial attempt at spending restraint. The budget limits the growth in state spending to roughly five percent. Unfortunately, the "wrap-up session" will give lawmakers plenty of opportunity to break the fiscal piggy bank with excessive spending. In fact, some have already suggested that the "heavy lifting" on spending will take place at that time.

Kansas lawmakers thus have a choice to make. They can force the state government to live within its means, or they can continue a sad tradition that allows spending to increase at unsustainable levels. According to a recent analysis by The Flint Hills Center for Public Policy, lawmakers have historically been unsuccessful at controlling spending. In fact, inflation adjusted state spending has grown over 50 percent since 1992.It is completely unreasonable that our government should feel immune from the same budget constraints that working Kansans face. The key to good budgeting is retaining the ability to say "no."

Every day, thousands of families and businesses throughout Kansas must make hard decisions and set spending priorities to live within their means. Of course, if we lived in a perfect world, all of us would have unlimited resources at our disposal and could avoid making tough choices that maintain fiscal responsibility. However, we live in a world of limited resources. That means we must understand the difference between needs and wants.Furthermore, if Kansas lawmakers approve runaway spending increases in the upcoming wrap-up session, they will deal a major blow to future economic development efforts. Every surplus dollar that is spent today will not be available for additional growth enhancing tax relief measures -- like franchise tax repeal -- next year.

Of course, some will always bemoan tax relief for businesses because they see it as a giveaway to "wealthy corporations." But they neglect one simple economic fact: businesses don't pay taxes - people do. The truth is, when we tax businesses, the burden falls on individuals. Real people, not inanimate business entities, pay the true burden of these business taxes.

If Kansas wishes to compete with Colorado, Missouri and Oklahoma for new business investment and jobs, taking steps like eliminating the franchise tax to improve the tax climate is a necessity. Excessive government spending, though, threatens to eat away funds that could be used for next session's tax relief.

In recent years most states have experienced surpluses. States wanting to nurture growth are applying at least part of their surpluses to lower tax rates. Kansas should be among those states taking action to insure their state's economic well-being.

Eliminating the franchise tax is a great start to make Kansas a better place to do business. But if lawmakers are truly committed to making Kansas' tax system more competitive, they must also commit themselves to spending restraint. As the Kansas Legislature prepares to convene for the wrap-up session, lawmakers have the opportunity to exhibit better fiscal restraint than previous legislatures.The upcoming choice of overspending verses fiscal responsibility is not about Republican versus Democrat, or left versus right -- it's about a choice between up or down for Kansas. To become competitive in the global business environment of the 21st Century, Kansas must continue to improve the business tax climate. And to ensure that funds are available for this pro-growth tax reform in the future, lawmakers must be responsible on the spending side of the fiscal equation today.

Jonathan Williams is a tax policy fellow with the Kansas-based Flint Hills Center for Public Policy and a staff economist at the Tax Foundation. A complete bio on Mr. Williams can be found at http://www.flinthills.org/content/view/24/39/, and he can be reached at williams@taxfoundation.org. To learn more about the Flint Hills Center, please visit www.flinthills.org.

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