In 2012, Kansas implemented a major tax cut on individual wage earners and pass-through businesses that purportedly led to a fiscal crisis in the State. This example is being touted as an argument against the strategy of lowering taxes as a means to spur economic growth. There is overwhelming evidence found in studies and actual success stories of many states that prove lowering taxes spurs economic growth. The Kansas example is not a well-founded argument for maintaining a high capital gains tax rate in Idaho. Firstly, the tax cuts in Kansas is not the failure it is made out to be and secondly it was not a reduction specific to capital gains tax rates.
No inference as to how a reduction in the capital gains tax rate can be drawn from actions taken in Kansas. A high capital gains tax rate acts as a deterrent discouraging the sale of capital assets at a gain, thus locking up capital that could be reemployed more efficiently. Lowering the tax on capital removes this deterrent. Thus, increasing the overall revenue Idaho would collect from capital gains taxes.
Posted with permission from the Idaho Business Alliance