TOPEKA – A flat tax plan moving through the Senate is designed to provide minimal relief to low-income Kansans while guaranteeing a windfall for high-wage earners.
An individual earning $15,000 would see just $1 in tax savings under the plan, according to an analysis by the Institute on Taxation and Economic Policy, a Washington, D.C.-based nonprofit that provides research on state tax policies and federal. Meanwhile, the top 20% of wage earners would receive about 70% of the total $764 million tax cut.
Senate Speaker Ty Masterson backed the flat tax proposal as a way to benefit all Kansans, rather than “those less fortunate.” Senate Bill 169 would apply a universal tax rate of 4.75%, replacing a current structure that charges a rate of 3.1% for income less than $15,000, 5.25% for income between $15,000 and $30,000 and 5.7% for incomes over $30,000.
Masterson linked the flat tax proposal to Senate Bill 248, which nullifies tax breaks on food, except for a select list of “healthy” staple foods. The idea is to save hundreds of millions of dollars by leaving the state’s unhealthy food sales tax in effect so the state can afford the flat tax cut.
Emily Fetsch, director of tax policy at Kansas Action for Children, said the plan is concerning because it is expensive and overwhelmingly benefits the highest-income Kansans. KAC promotes economic policy that will improve the lives of Kansas children and families.
“We’ve been here before and we know how difficult it is to make income tax changes once we’ve made this tax cut,” Fetsch said. “Where they usually have to make adjustments to other types of taxes: sales tax increase, property tax, excise.”
The Senate Tax Committee approved the flat tax bill on Tuesday. The bill exempts the first $5,225 of income to avoid imposing a tax hike on the lowest wage bracket, by the slimmest possible margin.
Under current law, someone earning $15,000 and paying 3.1% would have a tax bill of $465. Under the proposed flat tax, someone earning the same amount would pay 4.75% on $9,775 in income for a tax of $464.
At $764 million, the institute’s projected annual cost for the flat tax plan is significantly higher than the state budget director’s projection of $566 million.
The institute’s analysis shows that the bottom 20 percent of wage earners — those earning less than $25,000 — would see an average tax cut of $49. Those earning between $25,000 and $53,000 would receive $95. Those earning between $53,000 and $86,000 will receive $190. Those earning between $86,000 and $131,000 will receive $464.
The top 1% of wage earners, earning more than $622,000, would see an average tax break of $12,795.
Critics of the plan have drawn comparisons to former Governor Sam Brownback’s failed “tax experiment,” which included eliminating income tax for businesses and an income tax cut for top incomes, in 2012. .
Fetsch, the analyst at KAC, said the flat tax proposal is similar to the 2012 cuts because both involve a dramatic change in income tax rates that will lead to a significant loss of revenue. That would jeopardize the state’s ability to address unmet needs, she said, such as fully funding special education in K-12 public schools or reducing the waiting list for disability services.
Proponents of the flat tax say it will help reverse years of population losses by enticing people to move to Kansas.
Nationwide, Fetsch said, 1.5 percent of people commute each year, and those decisions are based on work and family, not tax policy. Many states have changed tax policies in recent years, he said, but that hasn’t coincided with mass migration.
He also pointed out that the state did not see a population increase during the Brownback years, despite similar claims made in support of the 2012 tax cuts.
“The talking points of migration, economic booms and the trickle-down economy are all evident in both policy thrusts,” Fetsch said.