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Kansas, Sam Brownback, and the Trickle-Down Implosion

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Justin Miller writes in The American Prospect:

ear midnight on Tuesday, June 6, a number of Republicans in the Kansas legislature did something that few other elected Republicans had done in years: They acted responsibly. Joining with Democrats, they voted to roll back the huge tax cuts that Republican Governor Sam Brownback had inflicted on the state, which had devastated schools and other essential services while also depressing the state’s economy. But after five years of this exercise in trickle-down, the damage had been done.

THE ROBERT B. DOCKING State Office Building looms large amid the sparse downtown Topeka landscape. Built along modernist lines in the 1950s, when government bureaucracy began to expand across the country, the simple concrete and glass structure provides a stark contrast with the Greco-Roman-style Kansas state capitol that has stood across the street since the late 19th century.

The Docking building was at one time home to most of the state government’s agencies, such as the Department of Revenue, the Department of Children and Families, and the Alcoholic Beverage Control. Today, the 12-story, 500,000-square-foot building sits nearly vacant—a laminated white sheet of paper on the door reads: “No More Public Services In This Building.” One by one, the alphabet soup of state agencies that once occupied the building moved out, most relocating to rented space in private office buildings.

The decaying, hollowed-out building stands as a grim testament to the blunt-force trauma that Brownback’s 2012 tax cuts visited on his state, and to the ensuing budgetary crises that led lawmakers to cut government services to the bone.

For years, Brownback has called for Docking to be demolished rather than renovated. It’s an apt metaphor for his approach to government.

The state’s health-care system teeters on the verge of catastrophe, as Brownback’s privatization of state Medicaid services and further refusal to expand Medicaid has squeezed low-income Kansans and health-care providers alike. Dozens of struggling hospitals across the state are on the verge of closing. “We have to make decisions every day, on which bills to pay. I mean that literally,” one small-town hospital CEO says. Brownback’s decision to cut taxes rather than restore K–12 public education funding has strained both urban and rural school districts, compelling two districts to end the school year early. Meanwhile, he’s ushered in drastic cuts to social services and placed strict work requirements and other limits on welfare programs.

By last year, even Republicans in this heavily Republican state (which Donald Trump carried last November by 21.5 percentage points) had had it with their governor’s insistence on turning the Sunflower State into a Petri dish for radical conservative economics. A number of Republican candidates ousted Brownback supporters in legislative primaries, and this year they teamed up with the minority Democrats in the legislature (whose numbers increased after last year’s elections) to begin rolling back the Brownback catastrophe. Overturning the governor’s vetoes, which required a two-thirds majority in each house, legislators this June voted to repeal the tax cuts enacted by Brownback and a Tea Party–dominated legislature in 2012.

But the devastation has been profound.

IN 2010, SAM BROWNBACK rode the Tea Party wave into the Kansas governorship, pledging to turn the state into a bulwark against President Barack Obama’s big-government liberalism. By 2012, through aggressive backroom politicking, he pressured hesitant moderate Republicans in the legislature to join conservatives in passing a radical tax plan that eliminated the state’s top income tax bracket, drastically slashed rates, and instituted an outright income tax exemption for limited liability companies—a huge tax break for a tiny segment of the population. Conversely, in a nod to “fiscal responsibility,” the plan did away with a number of tax credits that benefited low- and middle-income Kansans. Moderate Republicans in the Senate had thought they’d be able to engineer a less-extreme version of the cuts while in a conference committee with the House. They didn’t, and days later, Brownback signed into law perhaps the most radical version of trickle-down economics any state had ever embraced.

As part of the plan, Brownback instituted a “March to Zero” provision that would incrementally whittle the income and corporate tax rates down to nothing, while placing a 2.5 percent annual cap on state spending growth.

“Today’s legislation will create tens of thousands of new jobs and help make Kansas the best place in America to start and grow a small business,” Brownback pronounced when he signed the tax cuts into law on May 22, 2012.

But the governor’s push to create voodoo-economic bliss in Middle America never sparked that economic growth. To the contrary, Brownback’s Kansas has produced one of the worst-performing state economies in the country. While the nation has seen 7.6 percent job growth since 2013, Kansas has lagged far behind, with an anemic rate of 3.5 percent. Brownback has blamed the failure to achieve economic growth—and the resulting revenue underperformance—on downturns in the state’s agriculture and oil sectors, which, to be sure, have worsened the crisis on the margins but are not the driving force. Meanwhile, Kansans are fleeing the state in search of greener pastures: A 2015 survey found Kansas to be among the top ten states in the percentage of people packing up and moving away.

Brownback’s promise that the cuts—particularly the LLC exemption—would be “a shot of adrenaline” for the Kansas economy will be written on his political headstone.

The LLC exemption, the crown jewel of the governor’s tax policy, has allowed some 330,000 independent business owners—almost double the original estimates—to avoid state tax on most, if not all, their income, costing the state roughly $500 million in revenue in 2015 alone. A recent report from a team of researchers who scoured Kansans’ income tax returns concludes that the exemption has fueled more tax evasion than job creation.

Though Brownback argued that exempting owner-operated businesses from taxes would increase investment and jobs in the state, the report found no such results. “We can’t, to the best of our ability, find support for real responses in terms of economic activity because of the tax cuts,” report co-author and University of South Carolina economics professor Jason DeBacker says. Instead, the policy drove more people to simply reclassify their income as a pass-through to avoid taxation.

The small-business owners who were the intended beneficiaries suddenly had no tax liabilities each year. But with average savings of about $1,000 a month, according to one estimate, it was hardly enough to hire more workers or expand operations. One lawyer in suburban Johnson County told a Kansas City Star columnist in 2014 that he was saving as much as $10,000 a year—as were the 15 other partners in his practice—while the paralegals and other staffers with no ownership stake were still stuck paying income tax. He told the columnist that he planned to use his tax savings for a family vacation to Cancún. “I’m making out like a bandit, and it’s completely unfair,” he said.

Perhaps the most enlightening example of how the exemption worked came when a public radio station discovered in May 2016 that Bill Self, the head coach of the storied University of Kansas Jayhawks men’s basketball team, was not paying taxes on about 90 percent of his annual $3 million compensation.

While Self pays taxes on the $230,000 annual salary he earns as an employee of the university, he claims himself as an independent contractor for the additional $2.75 million for “professional services rendered,” as radio station KCUR reported. Kansas Athletics, Inc., which operates the university’s college sports, writes a $2.75 million check out to BCLT II, LLC, an entity owned by Self. Thanks to the exemption, Self, the highest-paid state employee, avoids taxation on that income, which would come to about $126,500 each year under the state’s current tax brackets. Other well-compensated university coaches in the state utilize LLCs as tax shelters as well. Not even Brownback’s staunchest supporters have argued that Self owns the team or that he has used his tax savings to expand its roster.

WHAT BROWNBACK’S TAX CUTS have accomplished is to have created a crisis of catastrophic proportions for state residents. The tax cuts blew an immediate hole in the $6 billion state budget, as revenue levels fell an astounding $713 million from fiscal years 2013 to 2014. Those revenue shortfalls have not abated in the years since. To help plug the hole, Brownback has run through all the state’s reserve funds and has increased borrowing, adding $1.3 billion to the state’s debt. “We are essentially the poorest state by now, with no rainy day fund—nothing in the bank,” says Duane Goossen, the former Kansas budget director for both Democratic and Republican governors.

The severely imbalanced budget led Moody’s to downgrade Kansas’s bond rating; three months later, Standard & Poor’s followed suit. The hit to the credit rating, though, was an inadequate measure of the damage to Kansans’ lives.

Like a number of Republican governors, Brownback refused to expand Medicaid in the state with federal dollars allotted by the Affordable Care Act, blocking 150,000 low-income Kansans from access to medical care and forcing dozens of struggling hospitals to operate in the red, many on the cusp of closure. Four years ago, Brownback privatized the state’s Medicaid program, arguing that Kansas should get out of the business of providing health-care services, and allow the private sector to provide less-expensive, higher-quality, and more-efficient care. However, the move has largely led to a crisis among beneficiaries and service providers alike, as access to care has become limited and state payouts to providers have been cut time and time again.

But Brownback’s budget cuts greatly compounded the problems created by his failure to expand Medicaid. They compelled the state to neglect the duties it is still in charge of—like enrollment, eligibility, contracts, and performance oversight. “They basically stopped doing all those things,” says Sheldon Weisgrau, director of the Health Reform Resource Project, which educates and assists with the implementation of health reform and ACA services in Kansas. “The functions left to the state can’t get done anymore because the state government has been so hollowed out.”

While federal law requires that states process Medicaid applications within 45 days, it can often take between six and eight months in Kansas. Last summer, the governor’s office claimed there was a backlog of more than 3,000 people waiting to get on Medicaid. That number was eventually found to be closer to 15,000 people. While the state quickly processes low-cost applicants like children and young adults, Weisgrau says, older people who need more care are on the waiting list far longer.

“What we’re seeing is they can’t get declared for Medicaid and thus can’t get into a nursing home; or people get into a nursing home but don’t get approved and the nursing home doesn’t get paid,” Weisgrau says. “People have died while on the backlog.”

Because Brownback slashed the number of state workers who determine Medicaid eligibility, those working on re-certifying recipients were shifted to certifying new applicants. Now, Weisgrau says, nobody is working on redetermination. “Typically if you don’t get redetermined, you get dropped out of the program. We hear reports from the field from providers who are no longer getting paid for those people,” Weisgrau explains.

Last year, the federal Centers for Medicare and Medicaid Services charged Kansas with violating federal compliance laws, stating that its administration of Medicaid was putting people’s health and safety at risk. Brownback’s office dismissed the report as a politically motivated potshot from the Obama administration as it was leaving the White House.

Many of the state’s rural hospitals, which are more likely to rely on Medicaid and Medicare reimbursements rather than private insurance payments, are struggling to stay open. All told, 34 Kansas hospitals are vulnerable to closing. One of those hospitals is Sumner Regional Medical Center in Wellington, 20 miles south of Wichita near the Oklahoma border. Voters in Sumner County have on multiple occasions voted to tax themselves to help keep the hospital open, most recently in 2016 when they approved a 1 percent sales tax increase.

“We’re in true survival mode, constantly,” the hospital’s CEO told the Kansas City Star. “If we’re going to go down, we’re going to go down swinging.”

If the Sumner hospital were to close, it could spell disaster for poor and elderly residents who might have a hard time making the trip up to Wichita, even more so for those who face a medical emergency. “Right now, if we lose [Sumner], we have people who live south of that along the Oklahoma border who, by the time an ambulance would get to them and back to a hospital, would have [a trip of] an hour or more,” says Anita Judd-Jenkins, a state representative whose district has three hospitals, two of which, including Sumner, are at risk of closure. “If that were your car wreck or your heart attack, would you not be concerned?”

BY PRIORITIZING HIS trickle-down tax cuts over all else, Brownback has also allowed a long-standing public school funding shortage to metastasize into a full-blown constitutional crisis.

Kansas’s public school system is more reliant on state funding than those of most states. More than half the state’s general fund is dedicated to funding K–12 public education. For decades, the state and local school districts have battled over funding levels and allocation.

In 2006, Kansas settled a lawsuit with school districts and committed to significant increases in funding over a three-year period. The state did increase funding, but when the Great Recession hit, then-Governor Mark Parkinson, a Democrat, made deep cuts to the education budget. The cuts were supposed to be temporary, but upon taking office in 2011, Brownback opted for his tax cuts rather than restoring the schools’ funding. Between 2008 and 2013, state school funding fell by 16.5 percent when adjusted for inflation. In 2015, Brownback cut $28 million more from the state K–12 education budget. A month later, he signed legislation that scrapped the state’s long-held school-financing formula, substituting a block-grant system that essentially locked in those cuts for the following two years. Two school districts were forced to end their school year early because they ran out of money.

Continue reading.  There’s a lot more and it’s a sorry record of abysmal failure.

This article is one of a series on “Trickle-Downers.” A note appended to the article explains the term:

Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.

Other articles in the series:

Kansas Redux: Illinois Legislature Overrides Governor’s Austerity Politics

Republicans Want to Make Deficit-Busting Tax Cuts Permanent
Real tax reform is hard. So a growing bloc of tax-cut enthusiasts wants to rewrite the rules of the game to secure rate reductions for the rich.

Kansas, Sam Brownback, and the Trickle-Down Implosion
The Kansas governor’s attempt to create supply-side nirvana in Middle America not only failed to grow the economy—it created a crippling crisis of government that led to a statewide rejection of his politics.

Senate Health-Care Bill: Tax Cuts for Rich, Skimpy Coverage for Everyone Else
Instead of moderating the GOP House’s version, the Senate health-care bill doubles down on cuts in coverage and tax cuts for the rich.

Paul ‘Jobs, Jobs, Jobs’ Ryan Should Heed Brownback’s Trickle-Down Failures
The Republican House speaker is trying to nationalize the failed tax experiment of his former boss, the Kansas governor.

 

Written by LeisureGuy

9 July 2017 at 6:18 am

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