By Travis Perry │ Kansas Watchdog
OSAWATOMIE — Higher tax revenue and decreased federal spending in areas such as grants and defense contracts could be awaiting Kansas if the U.S. careens off the so-called “fiscal cliff.”
A report by the Pew Center on the States called “The Impact of the Fiscal Cliff” extrapolates the likely result if congressional legislators are unable to agree on how to manage the country’s ever-expanding national debt.
“The fiscal cliff is not just a federal issue … but the consequences for states are not being considered in the national debate,” said Pew project director Anne Staufer.
“We did the study because we knew that states and federal fiscal policies are intertwined, but what’s really interesting is how closely linked they are, and how complex it can be,” she added.
That connection, Staufer said, is the various personal and corporate income tax credits and deductions shared between the state and federal governments. If the nation plunges over the fiscal cliff, Kansas would be among at least 30 states to see increased tax revenue, which could throw a wrench in Gov. Sam Brownback’s plan to cut state taxes by more than $3.7 billion over the next five years.
Brownback’s press secretary, Sherriene Jones-Sontag, said the governor doesn’t deal in “what if?” scenarios.
“The administration is not preparing for the hypothetical of an increase in state tax revenue because of federal tax policy changes,” Sontag said. “We believe lawmakers in Washington will come to an agreement to avoid the effects of the so-called fiscal cliff.”
Staufer said the tax revenue prediction was calculated using existing tax law and not the plan Brownback signed in March.
The scenario’s impact reaches beyond tax revenue; also at stake is federal spending on some grants, government contracts and employee salaries and wages. In all, Pew reported, such vulnerable areas of federal spending comprise about 20 percent of Kansas’ gross domestic product, according to 2010 statistics.
While Kansas’ projected outcome isn’t the most encouraging, it’s risk is at least distributed across multiple categories. Staufer said defense spending alone makes up 15 percent of Hawaii’s GDP, while Virginia, Maryland and Washington D.C. all lean heavily on federal spending on procurement, salaries and wages, which comprise 19.5 percent of their respective GDPs.
Carl Smith, CIO of the Kansas City-based Wholesale Batteries Inc., said his business could be affected by the fiscal cliff debate. Wholesale Batteries has received about 144 defense contracts since 2000.
“In our business, batteries are pretty much a requirement,” Smith said. “I don’t know that it would directly affect us in that regard, because batteries are a necessity. But spending reductions definitely will have a greater effect on the purchase of new equipment.”
While Jim Raubenstine of KA-Comm. Inc., Salina, can’t be so confident, he’s not overly concerned, either.
“I guess it’s kind of hard to say, until some of those things happen, how it will affect our business,” said Raubenstine, human resources director for KA-Comm., which outfits public safety and military vehicles with communication equipment.
Neither made predictions regarding the outcome, but Smith said he knows what needs to be done.
“The fiscal cliff is actually something that was, in my mind, something that we need to accept. We’re spending ourselves into oblivion, and we don’t have the revenues to support it,” Smith said. “It’s going to take a combination of cutting, as well as increasing taxes. There’s no one solution for it.”
— Edited by John Trump at [email protected]