Two studies on the impact of a proposed temporary one-cent sales tax increase in Kansas have drawn the same — and different — conclusions. Both say it would cost the state jobs, but one points to bigger long-term troubles.

A study released Monday by John Wong indicates a one-cent sales tax increase generating $350 million in tax revenue would result in fewer job losses in 2011 than a comparable cut in state government spending. Wong is the interim director of the Hugo Wall Center for Urban Studies at Wichita State University,

A January study by Art Hall, director of the Center for Applied Economics at the University of Kansas, found roughly the same immediate effect from the sales tax, but his model simulated six years of economic impact. Hall’s longer-range study showed a loss of $2 billion in personal income and a net loss of 19,486 jobs by 2015.

Wong used a computer model to show the sales tax increase would cost 1,946 fewer jobs than a $350 million in cut in state government spending. Making the cuts alone would eliminate a total of 5,177 Kansas jobs in 2011, including 2,786 government jobs, according to Wong.

Both economists were quick to point out that one study is not more correct than the other. They just use different tools to answer a slightly different question. Both agreed that Wong’s study is a static snapshot of the impact of the tax increase in 2011 and does not take into account changes in behavior caused by increased sales tax or project the impact beyond 2011 as does Hall’s.

The tax increase is supposed to reduce to 5.5 percent, still up from the current 5.3 percent, in 2013.

During the 2002 legislative session Gov. Bill Graves, a Republican, proposed a sales tax increase from 4.9 to 5.15 percent. The Legislature increased the rate to 5.3 percent with a promised return to five percent on July 1, 2005. Legislation adopted in 2004 froze the rate at the current 5.3 percent.

Wong’s system uses data on Kansas, including how many people the state of Kansas and local governments employ, and runs an input-output model to calculate employment and immediate economic impact. If a certain amount of money is cut from the state budget, a certain amount of jobs are lost.

The model simply assumes that cuts in government spending will automatically result in a proportional reduction in government job so it can’t reflect the impact of improvements in efficiency or spending reductions that don’t cut government jobs.   It only paints a theoretical possibility, which would only occur if government chooses to eliminate jobs.  “The model is only able to tell you based on what government is doing now,” he told KansasWatchdog in an interview Tuesday.

“Certainly that would be an ideal situation,” Wong said. “If somebody knows exactly what those are and what needs to be done in that context, more power to folks. If we can find $350 million dollars to get the same result and spend less money I think we’d all be in favor of that.”

Budget cutters are looking more carefully into state spending to find as many cuts as possible that don’t involve abolishing jobs, such as selling state office buildings or other hard assets to the Kansas Public Employee Retirement System and leasing them back from the fund, he said. Such a move would reduce ownership costs for the state and still provide the pension fund with dependable income.

A press release by the Kansas Economic Progress Council, which funded the study, says:

“The revenue enhancement scenario spreads the negative effects throughout the state, both geographically and across all 2.8 million residents.  The effect on any individual and on any business is minor.  In contrast, the spending reduction scenario severely affects a small number of state residents and businesses—state employees and those private-sector businesses that serve state employees and state government directly.  The likelihood of a business failing under this scenario is much greater than in the tax increase scenario.”

According to the Greater Kansas City Chamber of Commerce, KPEC has been re-purposed as a “progressive business advocacy agency.” The KC Chamber, the Heavy Constructors Association of Greater Kansas City and the Kansas Contractors Association are all founding members of KPEC which is opposed to a taxpayer’s bill of rights and other measures limiting government growth in Kansas.

Under Wong’s tax increase scenario, low-income Kansans will lose a higher percentage of their income to the tax increase. Households earning less than $10,000 would see a tax increase of $243, an additional 2.43 percent of their income, going to sales taxes. Households earning $150,000 or more would see a tax increase of $607, an additional 0.4 percent of their income.

Wong’s report also cited data from the Tax Foundation to show the average combined state and local tax rate will still be competitive with neighboring states. He also says tourists and other visitors to Kansas, though small in number, will bear some of the tax burden.

Some of the state’s biggest tourist and shopping attractions are in the Kansas City suburbs. Cabella’s, Bass Pro, Nebraska Furniture Mart and the Kansas Speedway, all generate significant sales tax revenue in communities that have combined sales tax rates comparable to or slightly below neighboring Missouri communities. A one-cent sales tax increase would reduce or eliminate that advantage.

A one cent sales tax increase would move Kansas from 23rd to ninth in the Tax Foundation’s national ranking of average combined sales tax burden.

Kansas is already losing the tax competition with Missouri. In August Quick Trip closed and demolished a convenience store in Kansas to rebuild about 100 feet away in Missouri. The move saved the company $1.4 million in taxes. Gasoline and cigarette taxes are already lower in Missouri.

—

KansasReporter’s Gene Meyer contributed to this report.

—

Related: Who’s Really Behind Pro-Sales Tax Study