Who wants cookies? Bill debates best way to build business in Kansas

Corporate income taxes in Kansas would be reduced to 5.75%, and two business subsidies — Promoting Employment Across Kansas (PEAK) and High-Performance Incentive Program (H-PIP) — would be discontinued under the term of Senate Bill 546 discussed in the Senate Committee on Assessment and Taxation.

Recipients of PEAK may retain or be refunded 95% of the payroll withholding tax of qualified employees for new jobs created in Kansas. Basic projects that create at least ten new jobs in metropolitan areas, or at least five new jobs in non-metropolitan areas, within two years may be eligible for up to seven years of payroll withholding tax savings.

Businesses participating in H-PIP receive a 10% tax credit that is eligible for capital investment of at least $50,000 at the company’s facility. In the five metro counties of Douglas, Johnson, Sedgwick, Shawnee and Wyandotte, the threshold is $1 million. The tax credit has a 16-year carryforward provided facilities are able to requalify for HPIP.

The state’s current corporate rate of 6.5%, the 21st highest in the nation according to The Tax Foundation, would be reduced to 6.5% this year, 6% in 2025 and 5.75% in 2026 under the legislation.

Graphic courtesy of The Tax Foundation

Testifying in support of the bill was Dave Trabert, CEO of the Kansas Policy Institute, owners of The Sentinel. He told committee members research shows tax subsidies don’t work for the economy or taxpayers:

“A 2017 analysis by Nathan Jensen, then with Washington University at St. Louis and now with the University of Texas at Austin, found that there was little evidence that Kansas PEAK (Promoting Employment Across Kansas) recipients were no more likely to add jobs than non-PEAK recipients.

“According to the Kansas City Star, “Jensen has since authored the book, “Incentives to Pander,” exploring why politicians frequently over-incentivize business development. Generally, academic research has found that at least 75% of companies awarded incentives would have made a similar investment regardless of the public subsidy.  Jensen says academics have long cited the border war here as a prime example of wasteful use of government incentives.”

“Dr. Arthur Hall, Executive Director of the Brandmeyer Center for Applied Economics at the University of Kansas, examined STAR bond projects in Wichita in a study sponsored by Kansas Policy Institute.

“He concluded that the projects merely shifted economic activity from one part of the city to another.

“Subsidies benefit the few recipients and the elected officials who promote them, but they often come at the expense of others. Retailers in one part of a city lose business when economic activity is shifted to another part of the city, for example.”

Trabert cited research showing corporate tax cuts are a more efficient incentive for economic benefit and job growth:

“A research paper published by the Economic Research Center at The Buckeye Institute and Kansas Policy Institute used Buckeye’s STELA (state tax and economic long-run analysis) model to compare the economic impact of a $500 million tax cut in corporate income tax, the personal income tax, and state sales tax. STELA can be calibrated to each state’s economy:”

Cutting the corporate tax rate would produce more economic benefit that tax subsidies

Jonathan Leuth of Americans for Prosperity – Kansas (AFP-KS) joined in support of the bill:

“We’re (Kansas) the 8th-most moved-out-of state in the country, and we’re looking at what our neighboring states are doing; they are tackling tax reform, both on the corporate and personal level. We have an opportunity to do that; remain competitive, and be one of the most competitive places in the region.”

The comments from Leuth brought on an exchange with Sen. Tom Holland:

Photo of Sen. Holland courtesy of Kansas Legislature

Sen. Holland: “Do you support at all the concept of having a Commerce Department where they can do targeted economic development; yes or no?

Leuth: “Defining targeted economic development incentives, I think, would be needed, but we could certainly have a conversation about how to best create an environment that is economically feasible for new and current investments.”

Sen. Holland: “If I’m a start-up… if I’m a business looking to come into Kansas… if I have to make extensive capital investments to get my plant up and going…how is lowering the corporate income tax rate going to help me do that, versus having the H-PIP program?”

Leuth: “I think continuing to improve the overall business environment is one step as part of that comprehensive reform that would need to happen in Kansas.”

Sen. Holland: “When you support this bill, is that your mission; ‘let’s get it (corporate tax rate) as low as we can and the economic development incentives, that’s more a secondary issue, it’s just not that important’?”

Leuth: “We (AFP-KS) have a standing history opposing a lot of the economic development credit programs. We’ve never supported subsidizing business in that way. Our goal is to support pieces of legislation that are going to put us on a path to create a better business environment so that we’re not ranked 26th or 28th for our business climate environment.”

Holland didn’t explain why he now supports tax subsidies after previously having been a vociferous opponent.

Tim Henry, Chief Financial Officer of Great Plains Manufacturing and Kubota North America, explained his opposition to SB 546:

“We view this bill as detrimental to investment. We have made multi-year plans and commitments. If this bill passes, the company will lose millions of dollars of those incentives that we anticipated when that investment decision was made.

“Our company took a facility that was going out of business and has now hired twice as many people as were there before. The company has on-shored production that used to be done in Japan and in China; some of that production is now being exported out of the United States. Our parent company decided to make another investment in Kansas for the research center for North America construction equipment, which is generating additional spending and additional jobs.”

Photo of Sen. Tyson courtesy of Kansas Legislature

Committee Chair Caryn Tyson asked Henry:

“The program doesn’t go away as to anybody that’s currently in it. So, you anticipated receiving these credits? Which program are you referring to?”

Henry: “We are participating in PEAK. We are in the third year of the PEAK contract of ten years. It sounds like that contract would still be retained. But on H-PIP, we file each year and you don’t get the credit until those assets are put into service.”

Sam Sackett with Sprint AeroSystems sought a middle ground, seeing merit in both lowering the corporate tax rate and preserving the incentive programs:

“These two programs not only incentivize new jobs, they create a foundation for protecting existing Kansas jobs, including coveted manufacturing jobs. We support the committee’s desire for a more competitive corporate tax rate and we think it’s in the state’s strategic interest to incentivize companies to invest capital in Kansas.”

To Mitch Robinson with the Kansas Economic Development Alliance, who also opposed the bill, Sen. Molly Baumgardner referred to a map showing Kansas counties participating in the H-PIP incentive program:

Photo of Sen. Baumgardner courtesy of Kansas Legislature

“40% of our counties have never participated in H-PIP. 18 counties that have, have only 1 H-PIP participant,” she said referring to her district; that includes Johnson County with 111 H-PIP participants.

“H-PIP participation is set at investments that exceed $1 million; those counties make up a majority of H-PIP. With the exception of Finney County, with seven H-PIP programs, there is not aggressive action from the Department of Commerce through these incentives to do anything for counties that have declining populations. This map illustrates it’s not for all Kansans; it’s pockets”

Robinson responded: It’s unfortunate those rural counties don’t have the industrial base to take advantage of it, and some places don’t have the skill base.”

Chair Tyson summarized the exchange: “This is government picking winners and losers again; if we can get the income tax as low as possible, I think we can get it considerably lower.”

David Hicks – The Sentinel

David Hicks grew up in southern Missouri and graduated from Mizzou with a degree in political science.  He has worked as a congressional staffer, broadcaster, government bureaucrat, columnist, campaign worker, and small business owner. He and his wife live in Bonner Springs.

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