In the final minutes of a nearly 12-hour session that stretched into Thursday evening, the Kansas Senate passed key legislation that would bring Kansas to a single tax rate of 4.75%, marking a significant rate reduction the state’s maximum personal income tax of 5.7 percent.
SB 169, a top priority for Senate Chairman Ty Masterson and Tax Committee Chair Sen. Caryn Tyson, would make Kansas the 14th state in the nation to enact a flat personal income tax, providing hundreds of millions of continuous relief without raising taxes on a single resident.
Right now, Kansas has a progressive income tax structure, with a top rate of 5.7% for earnings over $30,000. Income over $15,000 is subject to a 5.2% tax rate and the remainder is taxed at 3.1%.
Compared to neighboring states, Kansas’ income tax rates are uncompetitive. The state could lose potential new residents and investments to nearby competitors like Texas, South Dakota and Wyoming, all of which are income tax-free states. Meanwhile, border states like Missouri, Oklahoma and Colorado already have income tax rates below 5%, and some want to reduce them further.
Senator Masterson, who has supported SB 169 since its introduction in early January, outlined the benefits of having no income tax during last night’s debate.
“The states that are doing the best are the zero income tax states. Later states have a flat tax,” she remarked. “Do you know which are the fastest growing states? Florida, Texas: No income tax. North Carolina – flat tax”.
Kansans would save about $570 million each year with the Senate-approved flat income tax of 4.75%, a rate that applies to all income above $5,225.
The Senate also passed another bill Thursday night, SB 248, that would expedite the state’s food sales tax phase-out that is currently expected to conclude in 2025.
If enacted, not only would SB 248 eliminate the state’s current 4.0 percent sales tax on unprepared food by January 1, 2024, it would also prohibit localities from levying any sales taxes of their own. Taxpayers can expect to keep even more of their hard-earned dollars, especially since local sales taxes in Kansas often top out at 2%.
With the Senate’s passage of a flat tax and other pro-growth cuts, Kansas leaders are demonstrating their dedication to strengthening their state’s economy and protecting their residents’ hard-earned dollars.
A lower, more uniform income tax also directly benefits small businesses, which are taxed on the personal side of the code. Companies will have even more reasons to invest in new jobs and higher wages across the state of Kansas. This is a better path than passing even more targeted tax cuts that only benefit politically favored groups.
“We can’t keep buying economic development,” Senator Masterson said, referring to the many subsidies and special tax rates designed to entice certain companies to invest in Kansas. “The best thing we can do, in the long run, is have a structure that’s beneficial.”
SB 169 is now being examined by the Chamber. In fact, the Chamber is already evaluating its own version of the flat tax legislation.
HB 2061 would establish a single rate of 5.0% for personal and corporate income taxes, but with a more generous exemption threshold set at $15,000. The House bill also includes “revenue triggers,” a mechanism that requires state revenues to grow a certain amount above budget needs before tax rates are reduced.
Several states, such as North Carolina and Missouri, have implemented their own revenue triggers to further reduce income tax rates. Similarly, HB 2061 would funnel excess revenues into a dedicated fund, reducing state income tax rates to zero.
Any flat tax proposal will eventually require either the signature of newly re-elected Democratic governor Laura Kelly, who has repeatedly spoken out against a flat rate tax, or the support of 2/3 of lawmakers in both houses to override her veto. Assuming no Democrats break with the governor, all but 1 Republican in the House and 2 in the Senate are needed for an override attempt to be successful.