What’s the matter with Kansas? (big government)

Kansas elected a governor named Sam Brownback in 2010.  He cut income tax rates, promising faster economic growth.  It didn’t work out, and now he’s in a close race for re-election.  Last summer over at Econlog I focused on the absurd claim that these income tax cuts should be expected to raise revenue.  (Not sure who made them, either actual supply-siders, or liberals like Paul Krugman fantasizing about nutty supply-siders.)  In any case, there is virtually no way a state income tax cut cut could boost state income tax revenue, given how low state MTRs are compared to federal MTRs.  Indeed in my Econlog piece I pointed out that the total top MTR in Kansas rose dramatically under Brownback, due to the Obama tax increases.

But the top rates rose even more in other states, so why didn’t Kansas do a bit less bad?  I’m not certain, but I think people tend to expect too much from slight tinkering with taxes and spending. Supply-siders have no one but themselves to blame when they oversell a policy.  I wouldn’t blame the Kansas voters for dumping their governor.

To get a better perspective on what’s wrong with Kansas, let’s compare it to the other 5 states in the center of the country.  Foreign readers know about Texas, but stacked on top are 5 boring, anonymous, rectangular-shaped states.  These cover the Great Plains, a desolate windswept prairie with cold winters and hot summers.  Nothing like the south of France.  Basically there is no reason that any sane person would want to live in any of those 5 states.

[I can cop a superior attitude because I grew up in more sophisticated Wisconsin.  Which has trees. And lakes.  Even as we midwesterners resent the condescension of the coastal elites, we develop our own pecking orders, our own prejudices.]

Here is data I found for state government spending as a share of gross state product in fiscal 2015, for the Great Plains states (north to south):

North Dakota:  16.6%

South Dakota:  13.9%

Nebraska:  17.7%

Kansas:  18.3%

Oklahoma:  16.9%

Texas:  15.2%

Notice that Kansas is the big spender, even after Brownback.  By comparison, California is 18.1%. (Is this data accurate?)

It’s hard to know which of America’s states is the least well known.  Texas is famous.  Oklahoma was a musical.  Kansas had The Wizard of Oz.  Nebraska has Warren Buffett. And North Dakota is newly famous for “the Bakken.”  The only thing marring South Dakota’s prefect blandness is Mt Rushmore.

I would also say that South Dakota has the least going for it.  Three of those states have oil, and Kansas has some affluent suburbs of Kansas city, without the inner city poverty.  Nebraska has slightly better farmland.  And yet by some miracle, South Dakota is booming.  Here’s The Economist, in an article titled “Quietly Booming:  How a neglected state is succeeding”:

Quiet success might be South Dakota’s motto. It has no oil industry; its neighbour North Dakota, with its shale-oil boom, gets all the notice. It has no large military base. There is not even an influential university. Yet South Dakota’s 3.7% jobless rate is the third-lowest in America. The rate is even lower in Sioux Falls, which has the fourth-fastest-growing economy in the country.

The state economy used to rest on farming, but today hospitals and financial companies are among the chief employers. The change began in 1980 when the state enacted financial reforms, prompting Citibank to move its credit-card business there. So many banks followed that the state now has more bank assets, $2.76 trillion, than any other, including New York.

Manufacturing and biotech are thriving, too. Last year Marmen, a French-Canadian wind-turbine manufacturer, opened its first American plant not far from Sioux Falls. Bel Brands, the American arm of a French dairy company, has also invested in the state. South Dakota sits usefully in a nexus of north-south and east-west interstate highways. There is also a decent labour pool. Many workers are little more than a generation from the farm: absenteeism is low, and the unions insignificant.

Taxes are attractively low. South Dakota has no state income tax, personal-property tax, inventory tax or inheritance tax (which has led to a growing trust industry). The regulatory climate is also benign. Dennis Daugaard, the Republican governor, believes in keeping government out of business’s way. “When it comes to laws,” he says, “more isn’t always better.” Since 2011, when he came to office, he has repealed 3,724 regulations.

While people have been looking at Kansas, South Dakota is the real supply-side miracle.  In my view the key is the lack of a state income tax.  While Brownback did cut the top rate in Kansas, it was merely to 4.8%, only slightly below the 5.3% rate in Massachusetts.  In contrast, the top rate is 0% in South Dakota (and Texas.)  Personally, I wouldn’t move to South Dakota if it was negative 10%.  (I plan to retire in California.)  But the zero rate is probably low enough to draw in a few hardy midwesterners.  But a 4.8% rate?  Sorry Brownback, that’s not going to produce any miracles, not when you are sandwiched between Texas and South Dakota.

PS.  The Economist mentions that the Indian reservations in western South Dakota are very poor, as firms don’t want to invest in a place where they would not be able to have any property rights.  I don’t recall seeing that issue discussed in the blogosphere.

PPS.  Matt Yglesias and Ryan Avent and Paul Krugman are right; the coastal areas need to build much more housing.  People want to live in California despite the horrible state government. That’s why their housing prices are so high.  Instead people are forced into places like the Great Plains. And that’s a crying shame.  (Did I mention that I plan to retire in CA?)

PPPS.  Koch Industries is based in Wichita, Kansas, and uses a Thomas Piketty-like egalitarian management approach:

The system is highly democratic. Koch has an unusually “flat” organisational structure for a company its size. Workers can earn more than their bosses. High-school-educated farm boys from Kansas can rise faster than Ivy League MBAs and end up running multibillion-dollar divisions.

PPPPS.  After doing this post I came across an article in the WSJ on the new rankings by the Tax Foundation:

Fast-growing Wyoming [#1 tax climate] has no corporate or individual income tax, but it can’t rest on its laurels. Wyoming is facing new competition from states seeking to modernize their tax systems to compete for jobs and opportunities. Kansas fell three spots to 22nd despite its income-tax cuts because other states didn’t stand still.



25 Responses to “What’s the matter with Kansas? (big government)”

  1. Gravatar of David R. Henderson David R. Henderson
    28. October 2014 at 18:07

    Scott, Those numbers are too high. And, sure enough, when I checked your source, I found that the data are for state AND local government spending as a % of GDP.

  2. Gravatar of Joeleee Joeleee
    28. October 2014 at 18:45

    I feel that when comparing tax policies of adjacent regimes and whether they would be income neutral or not, average tax rates are somewhat important. Whether you move to a new tax regime will depend more on what your overall tax liability will be rather than what your marginal tax rate will be as you’re not so much concerned about earning an extra dollar as you are about earning the same number of dollars but in a different place.

    The analysis would still hold as the difference in average taxes would be quite small but I’m not sure considering MTRs is the right approach. Happy to be corrected if I’m misunderstanding this.

  3. Gravatar of ssumner ssumner
    28. October 2014 at 18:56

    Thanks David. I did not realize that. State and local spending are probably the more appropriate data for my argument.

  4. Gravatar of Brett Brett
    28. October 2014 at 19:04

    PPS. Matt Yglesias and Ryan Avent and Paul Krugman are right; the coastal areas need to build much more housing. People want to live in California despite the horrible state government.

    People are migrating within California to cheaper areas as well (particularly to parts of southern California). Southern California in particular had some huge county-to-county migration.

    As for South Dakota, the usual caveats about a state doing the “tax and regulatory shelter” job applies. Not everybody can be the nation’s regulatory shelter for the credit card companies. That said, South Dakota had a pretty good history of development going back to the 19th century – it was one of the few states where you didn’t have railroads built all over the place because of massive subsidies and corruption, so there was a healthier pattern of farm expansion and development followed by profitable extensions of railroad lines into the state.

  5. Gravatar of Name Name
    28. October 2014 at 20:47

    I wonder what people would say if those exact deficit-financed tax cuts were done in the name of Keynesian fiscal policy.

  6. Gravatar of Aaron W Aaron W
    28. October 2014 at 20:59

    That data is projected for 2015, so I’m not sure exactly how accurate it is. FY2013 doesn’t look THAT different, though. Still, the data is actually a lot more interesting than I thought, especially since it seems to run counter to a lot of the nonsense coming out of partisans’ mouths.

    For fun (and knowing full well that it doesn’t mean all that much), I just decided to run correlations on growth vs. state and local spending and growth vs. state and local revenue. For spending, the r value was -0.235. For revenue, the r value was -0.05. Oddly enough, Alaska is what’s bringing the r values down, it would be a scatter plot otherwise.

    The contrarian in me started giggling.

  7. Gravatar of Gordon Gordon
    28. October 2014 at 21:00

    “I plan to retire in California.” I’m a native Californian and I don’t really want to be here in the long term. The two things keeping me here are that I’m a tech professional and my relatives are here, too. I’m required to have a carbon monoxide detector even though everything in my housing complex is electric. The strict smog check requirements meant that I had to drive my car over a 100 miles in a few days in order to get it to pass in time. The voters rejected a proposition to put an end to the gerrymandering of districts. And when a tax increase was passed to fund higher education, the UC regents decided to use it to give a raise to the UC chancellor. These are just a few examples of how this is no longer the Golden State.

  8. Gravatar of Saturos Saturos
    28. October 2014 at 21:29

    TIL: Nick Rowe has a thick British accent. Video interview with him on RT (HT David Beckworth on Twitter): http://youtu.be/fRoW-NrSgYQ

    (PS are anchors really presenting like that nowadays? Is this a thing now? Dear god.)

  9. Gravatar of TravisV TravisV
    28. October 2014 at 21:44


    Fantastic stuff, thanks for the link! I could already sense Rowe’s personality from his writing but I LOVE seeing it in living color!

  10. Gravatar of Brett Brett
    28. October 2014 at 23:12

    While I love visiting San Diego, I can’t imagine living there for more than a few weeks. I like some variation in the weather, including occasional real cold.

  11. Gravatar of cassander cassander
    28. October 2014 at 23:25

    If you dive down into the state budget figures, you find that they haven’t really even cut spending or revenues. Most stories I have seen cite the general fund figures as if they were the whole state budget, but really the general fund is only about 2/5s of state government spending and taxes. It’s obnoxious to get to, Kansas seems to delight in changing the format of their budget documents every couple years, but if you dig into past budgets (they’re all online) spending and revenues are both up over the last several years.

  12. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 23:26


    Apparently, you did not get the memo. The new budgetary standard for something “paying for itself” is not whether it, on net, raises revenue; it is whether it does not increase the debt-to-GDP ratio (useful particularly if the ratio is already about 1:1):

    See here:


    And here:


    While that might be a modest improvement over using an historical average over x number of years (where there is an inexorable upwards bias); It appears that when it comes to tax cuts, “paying for itself” means one thing; but, when it comes to spending, “paying for itself” means something altogether different.

  13. Gravatar of Vivian Darkbloom Vivian Darkbloom
    28. October 2014 at 23:31

    And, here:


  14. Gravatar of W. Peden W. Peden
    29. October 2014 at 01:58


    One could add that Nick Rowe is from one of the most British parts of Britain: the Scottish-English borders.

    Also, that is exactly the kind of beard I would expect from Nick Rowe. In fact, it would be a shock to my expectations if he didn’t have exactly that beard.

  15. Gravatar of W. Peden W. Peden
    29. October 2014 at 02:01

    Nick Rowe has a memorable style of writing, of course, so it’s not so surprising that he does well on TV!

  16. Gravatar of Saturos Saturos
    29. October 2014 at 03:30

    W. Peden, yes, I always thought he ought to get interviewed on camera! I had no idea he was from Britain! I was expecting him to look like his blog profile pic, which also prepared me for the beard somewhat – but it seems to be a little out of date… the beard I can live with, the turtleneck, not so sure about – though it is perfect for him, I guess. (Is he deliberately going for the Jobs look?)

  17. Gravatar of ssumner ssumner
    29. October 2014 at 05:32

    Brett, Thanks for that info.

    Name, Good point. They’d give him a badge of honor.

    Aaron, Very interesting.

    Gordon, Yes, they have perhaps the worst state government in the country.

    Saturos, Thanks, I have a link in my next post. I was also interviewed on that show. When I see today’s news anchors it makes me feel really, really old.

    Brett, I hate cold, I’ve dealt with it my whole life. Hot weather is fine with me.

    Cassander, That’s quite interesting.

    Vivian, Great point.

  18. Gravatar of am am
    29. October 2014 at 06:48

    Yes, you mentioned your plan to retire to CA twice.

    I suggest you retire to Africa and in your spare time give an occasional course on trade, devaluation and currency wars. The Victoria Falls is quite a good location for courses although you may prefer the Maasai Mara.

  19. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. October 2014 at 07:27

    Here’s the Tax Foundation report;


    I’m having a good laugh at Menzie Chinn’s Wisconsin’s rank of #43.

  20. Gravatar of Noontime Spender Noontime Spender
    29. October 2014 at 10:38

    South Dakota has the Corn Palace. And it is not as smelly as you might think.

  21. Gravatar of TallDave TallDave
    29. October 2014 at 11:23

    Check out the 2005 rankings for states by per capita income, and then 2014 — iirc SD moved up something like 20 or 30 spots.

  22. Gravatar of Tom Tom
    30. October 2014 at 05:55

    According to the WSJ the house tried to pass a bill that was revenue neutral but the senate kept tax carve-outs and got rid of a spending cap. “They figured the governor wouldn’t sign a bill that caused a deficit, yet they still wanted to claim credit for voting to cut taxes.” Brownback called their bluff and passed that bill.


    I can’t speak to the messaging, but this was not the original plan. A more charitable view is you cut taxes now and get spending in line afterward. He’s just trying to manage the situation until that bill can be passed. This is the opposite of the “we agree to cut taxes in the future if you raise spending now” compromises on the other side (and reminiscent of the 1986 tax reform that had promises for spending restraint as well that never materialized).

  23. Gravatar of Elwailly Elwailly
    30. October 2014 at 06:58

    Just wanted to make the point that it may not be the zero rate in Texas and South Dakota that are causing higher growth, but the non-zero rates in surrounding states.

    The problem is it’s not clear that if all states go to zero tax rates they will all benefit. I fear that you just end up with smaller taxes, smaller government (fewer services from my point of view), and the same old growth rates as before.

    If nominal growth rates are ultimately driven by the stance of money, why would zero taxes (everywhere) matter? Especially with inflation targeting…

    A supply side boost everywhere from tax cuts just redistributes priorities (money) in the face of inflation targeting. It doesn’t necessarily route money to the most utilitarian use.(That’s a judgment call that depends on ones politics – and I agree my politics _may_ be wrong, but that’s not the argument you’re making.)

    This whole process only helps the early adopters (South Dakota and Texas) in the early days of a race to the bottom.

  24. Gravatar of ssumner ssumner
    31. October 2014 at 13:01

    Elwailly, Yes, that’s possible, but I believe supply-side policies can even work at the national level. Lower taxes seem to work in places like Switzerland and Singapore. Even the US has lower taxes than most developed countries, and higher GDP/person. My point was that Kansas doesn’t tell us very much.

  25. Gravatar of David David
    5. November 2014 at 05:55

    Scott, Did you look at the percentages for the rest of the states? That 18.3% puts Kansas squarely in the middle. The top 5 states for spending as percent of GSP are NY (22.0%), WV (22.2%), VT (23.4%), AK (25.6%) and MS (25.7%). The bottom 5 are DC (13.6%), SD, TX, NH (15.5%) and VA (15.8%). I don’t know what it all means, but numbers are interesting.

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