Monday, September 15, 2014

An Unfair Tax Policy

By Duane Goossen

Kansans like things that are fair, practical, and commonsense — but those words don't describe Gov. Sam Brownback’s tax plan. 

Low-income Kansans pay more. The wealthiest Kansans receive a huge break without any requirement to keep their newfound tax savings in Kansas. The resulting revenue shortfall has put the state budget on a path to default.

The governor’s tax plan, which passed the Kansas Legislature in two phases, simultaneously decreases some taxes and raises others. The net effect is a dramatic reduction in state revenue. 

The plan decreased state revenue significantly by lowering income tax rates, and entirely eliminating state tax on business “pass through” income. Those revenue decreases were partially offset by keeping the sales tax rate at 6.15 percent instead of letting it drop to 5.7 percent, and by limiting income tax deductions and credits. (A March 27 article from the Center for Budget and Policy Priorities provides more detail and discussion.)

Kansans do not benefit from the tax changes equally.

A revealing graphic from the Kansas Center for Economic Growth shows who paid and who benefitted in tax year 2013, the first year of the plan.

Lower income Kansans get an income tax rate cut, but pay more in sales tax. They are no longer eligible for refundable food sales tax credits and homestead property tax credits for renters. Net outcome: They pay more taxes to the state. (Steve Rose gives examples in a May 3 Kansas City Star editorial.)

Middle income Kansans receive the income tax rate cut, but their income tax deductions are limited, and they pay more in sales tax than they otherwise would have. Their net outcome is a slight reduction in overall tax payments that many likely did not notice.

Upper income Kansans pay the higher sales tax rate and have more limited deductions, but the benefit from income tax rate reductions far exceeds any new tax costs. Upper income taxpayers often have a more complex structure for receiving income, also allowing many to benefit from the elimination of tax on “pass through” business income. (Josh Barro, in a June 27 New York Times piece, uses himself as an example to provide an understandable account.)

All Kansans bear the brunt of the state budget problems that are now playing out because revenue has dropped so dramatically. K-12 education has been hurt by reduced funding to classrooms. Human service programs have been cut. The Highway Fund has been tapped to pay for other things. 

And even still, the budget does not balance.

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