The Short-term Effects of the Kansas Income Tax Cuts on Employment Growth

The state of Kansas made dramatic changes to the structure of its personal income tax by eliminating taxation of business income and lowering marginal tax rates on other personal income sources. Proponents of the legislation maintain that the tax reductions will stimulate employment growth. Using a difference-in-differences approach, we estimate the impact of the tax changes on private-sector employment in the state of Kansas, relative to its border states, using data on the number of establishment employees and proprietors. We apply multistate county fixed effect model and county-border matching approaches to identify tax effects. Our findings indicate that two years post enactment, the tax law changes have not yielded a net increase in private-sector employment.