Kansas Gov. Brownback's Radical Tax Cut Has Mixed Results
ROBERT SIEGEL, HOST:
Kansas is in the middle of an experiment. The Republican governor there, Sam Brownback, cut taxes to the bone. He promised major economic growth would come as a result, and it hasn't. Now Brownback's experiment could cost him the election. Zoe Chace of our Planet Money team reports.
ZOE CHACE, BYLINE: Republicans talk a lot about cutting taxes. Sam Brownback, though, went really big. Two years ago, he slashed income taxes in Kansas - 24 percent for the highest tax bracket and cut small business income taxes to 0.
LES DONOVAN: So you really get your acceleration. It's like shooting adrenaline into the heart of growing the economy by taking that tax off of small business, where most of your job creation is.
CHACE: The theory was this, as Les Donovan explains - he's a state senator who helped get the bill through - businesses would use this tax cut to hire new people, grow the economy. Other small businesses would move to the state, and it would be a job explosion.
LES DONOVAN: To cut the tax out on these certain types of income - business income - is an incentive for people to hire more people, and they're going to pay taxes to Kansas. That's the way this is supposed to work.
CHACE: It hasn't actually worked out this way, and it's because when you look at how some of these small businesses actually responded there's this key thing they have not done that is part of Brownback's plan. Alex Harb for instance in Wichita, he runs a computer chain in town called Ribbit Computers and a restaurant.
ALEX HARB: Beef and chicken, shawarmas, falafel sandwiches, hummus. We have the Mediterranean-style, the fattoush salad, you know. It's fresh, and it's delicious, and it's inexpensive.
CHACE: He didn't even know he was going to get this big tax break.
HARB: I honestly didn't really believe it, so I called my accountant. He said, yeah, you're not going to pay any taxes next year, so I was like, great.
CHACE: Alex's first move was exactly what Governor Brownback wanted to happen. He took the money he saved from his taxes and invested in his computer business.
HARB: We added more iPads into our inventory with that money.
CHACE: You got a bunch of iPads?
CHACE: Now he plans to sell iPads at Ribbit Computers. So this is the first step in the Brownback experiment, the reinvestment. The next step is supposed to be hiring.
CHACE: Did you hire anybody?
HARB: Not really, because you hire people not based on how much money you have - based on your business. So it didn't really have immediate help on the business. I didn't really notice any more business purchasing, you know, around here. So didn't really trigger anything to hire more employees.
CHACE: Alex Harb has a lot going on - closing down two computer stores in town, opening up three smaller ones. Still, he says he's not going to hire. The job explosion hasn't happened. Since the tax-cut employment has grown by about 2 percent in Kansas - that's less than the national average - three out of the four neighboring states have grown significantly faster, and they have higher tax rates. And this experiment has done a real number on the Kansas state budget. They have much less income tax coming in because the state cut taxes. And because the jobs didn't come, the state saw this huge drop in revenue. They took in about $600 million less last year than they did the year before. And that freaks out some of the people who are paid out of that budget.
GLEN SUPPES: We're watching this train run into a wall, and we're all sitting here watching it.
CHACE: Glen Suppes is a school superintendent. He saw the money he got from the state per-pupil slipping, and he decided he had to cut a school from his district - the one school in the tiny town of Marquette, Kansas. He remembers the parents from the school turning out for the board vote.
SUPPES: There was silence before the motion. No one wanted to give the motion. They knew what they needed to do. They thought about it many times before that night.
CHACE: I went out to Marquette to see the town without a school - grain elevator, main street, restaurant, bar and one grocery store with a smoker outside.
CHACE: That looks so good.
STEVE PIPER: Then I had ribs around the whole thing earlier. This one was full of ribs, too, earlier.
CHACE: Steve Piper's in charge here - round, bald, wearing an apron. This is the kind of guy that was supposed to benefit from the Brownback tax cut. But the school closing, that was a way bigger deal to him.
PIPER: For a business owner, you're better off having those teachers and those jobs here in Marquette, that they then shop in town, help you out that way, versus having lower taxes - well, if you're not making any money to start with, taxes mean nothing if your sales are down.
CHACE: This school probably would've closed at some point. Lots of schools have closed in rural Kansas, but because of the big experiment people in town are pointing to Brownback, blaming the tax cuts. Governor Brownback in ads and debates says, hey, things were worse four years ago when I came in, now job are growing in the state of Kansas.
(SOUNDBITE OF ARCHIVED RECORDING)
GOVERNOR SAM BROWNBACK: We are moving in the right direction and getting things done.
CHACE: The verdict on Brownback's experiment is coming next week, election day, and it's a dead heat. Too close to call. Zoe Chace, NPR News.