What if Kansas threw a billion dollar party and nobody showed?

That’s what happened for “economic development.” 

Kansas’ one-company-at-a-time economic development policy failed to grow our economy.  The Legislature’s special deals to companies, including outright cash payments, took away focus from our state's high tax rates - which affect everyone. Meanwhile, our economy has lagged compared to the nation and region.

When one company or industry gets special deals, the effective tax burden is increased on those remaining, which makes Kansas less attractive to everyone else (think Detroit and auto manufacturing). So while the “seen” growth of a company receiving special treatment may seem real, the “unseen” effect can be found in sluggish economic growth and high tax rates.

A recent report from the Legislative Post Audit says we’ve spent more than $1 billion on “economic development” from 2003 to 2007.  No one seems sure what impact, if any, these dollars have made.

The report suggested, and legislators agreed, that Kansas must continue to offer incentives because other states do. This report concludes the efforts to lure companies have little, if any, discernible impact on economic growth. This makes sense how?

Wall Street is filled with people who attempt to pick winners in the marketplace. But they frequently fail and miss new industries and trends (like the Internet!).

If one simply invested in the S&P 500, you would do better than more than 90% of mutual funds, who are run by handsomely paid money managers. If professionals fail at this, why would our citizen-legislators and bureaucrats succeed?

Well, they don’t succeed. 

So what can Kansas do?  Stop trying to pick winners and let the market do what it does best. 

Our policy makers can’t change our state’s location, weather or geography. They can change the cost of government and our tax burden.

Rather than helping just a handful of firms, why not assist everyone?

Consistent data indicates states with the lowest overall tax burdens have the greatest economic growth, not those with the biggest incentive packages.

First we should allow every business, of any size, to deduct capital expenses from the time of purchase instead of depreciating them. No legislators or bureaucrats picking which businesses get to do this – they all will.

Our corporate and individual income tax rates and our sales tax rates are 2nd highest in the region. Two of our regional neighbors, Texas and South Dakota, don’t even have an income tax.  

While more people are moving out of Kansas than moving in, South Dakota (South Dakota!!) is booming.

Restrained spending is economic development. Since 2002, state revenues have averaged 5.4% increases. If our budget simply increases at 5% over the next five years, we’d have more than $1 billion for much-needed tax relief. That amount, coupled with rerouting a good portion of the current eco-devo money, would do wondrous things for Kansas’ tax burden. We could eliminate the corporate income tax, reduce our income tax rates and sales tax rates below those of Missouri and Oklahoma (see chart below).

Let’s unleash Kansas’ entrepreneurial strength and quit asking so much of our policy makers.  We didn’t elect them to pick the best businesses and well, they haven’t been doing so well at that anyway.

Seven State Tax Rate Comparison 
2008  (except where noted)