In his evaluation of the Kansas House flat tax proposal, state budget director Adam Proffitt calculated that the annual cost would be about $1.5 billion when fully implemented. (Rachel Mipro/Kansas Spotlight)
By SHERMAN SMITH, TIM CARPENTER and RACHEL MIPROReflector Kansas
TOPEKA – Assessments by the Kansas budget director and an independent tax policy institute on Monday showed the Kansas House flat tax proposal would reduce the state budget by $1.5 billion annually and primarily benefit wage earners richest in the state.
The Kansas House, which exercises substantial influence in the Statehouse, has introduced a plan that sets an individual income tax rate of 5% for annual income exceeding $15,000. Under current law, the state’s graduated individual income tax rates are 3.1% for income less than $15,000, 5.25% for income between $15,000 and $30,000, and 5.7% for incomes exceeding $30,000. The income amounts are doubled for couples filed jointly.
In addition, Kansas Chambers’ proposal, introduced in House Bill 2061 and Senate Bill 61, would establish a corporate tax rate of 5% on taxable income. Current corporate income assessments in Kansas: 4% on taxable income with a 3% surcharge on taxable income above $50,000. The bill would also cut the surcharge for banks, trusts and savings and loan associations by more than 50%.
Provisions in the bill would also create a process to allow for reductions in personal and corporate income tax rates in future years.
Adam Proffitt, state budget director, released an assessment of the bill’s financial impact on the state treasury. In the fiscal year beginning July 1, the legislation will reduce state revenues by $428 million. In the second and third years, reductions in current receipts would total $1.45 billion and $1.54 billion.
These figures are consistent with an analysis by the Institute on Taxation and Economic Policy, a Washington, DC-based nonprofit that provides research on state and federal tax policies. Kansas Reflector asked ITEP for an analysis of proposed Kansas House legislation.
ITEP estimated that the top 1% of Kansas wage earners would see an average tax cut of $11,510, while the bottom 20% would receive a $192 tax cut under the Kansas House plan.
Overall, the institute projected that 49 percent of the individual income tax cut in Kansas House proposals would go to the top 20 percent of Kansans. The bottom 20% of income earners would receive 4.1% of the tax break.
“Kansas lawmakers have a well-documented history of irresponsible and regressive tax cuts,” said ITEP senior analyst Dylan Grundman O’Neill. “Instead of prioritizing bigger tax cuts, they should instead help low- and middle-income Kansans by protecting state investments in key elements of the economy such as good schools, safe roads, and thriving communities.”
Kansas Chamber lobbyist Eric Stafford outlines priorities including a flat tax proposal during a taping of the Kansas Reflector podcast earlier this year. Stafford introduced legislation that would lower the income tax rate to 5% for all individuals. (Sherman Smith/Kansas Reflector)
More than 80 percent of the corporate tax cut described in the Kansas House bill would go to shareholders of large out-of-state companies.
ITEP said the $1.5 billion annual price tag of the tax reform legislation would deplete the state’s current surplus and jeopardize state services in future years.
The tax proposal is among the Kansas House’s top priorities this year in the Statehouse.
Eric Stafford, the Kansas House’s top lobbyist, said the organization’s legislative agenda, with a heavy emphasis on tax policy, was designed to improve the state’s economy.
“We have to become more competitive,” said Stafford. “We have to grow up. We need to attract more business investment. We have to attract people here. And it’s not just necessarily income taxes. We are the sixth highest cell phone tax burden in the nation.
Senator Ethan Corson, a Democrat from Fairway, said the state can’t afford the Kansas House flat-rate tax plan — “not even close.”
“I think he died upon arrival, or should have died upon arrival,” Corson said.
Corson said the Kansas House proposal would require “gutting” funding for transportation, failing to meet obligations to the state employee retirement system, and constitutional funding of public schools.
Instead, Corson said, fiscal policy should be focused “on the people who need it,” meaning low-income and middle-class Kansans.
“We have the ability to cut taxes,” Corson said. “Just like every other legislator in this building, I’d like to tell my constituents that we’re cutting their taxes. I think there’s room in the budget to do that.”
Senator Ethan Corson, D-Fairway, says the Kansas Chamber flat tax plan should be considered “dead upon arrival.” (Sherman Smith/Kansas Reflector)
Rep. Adam Smith, a Westkan Republican who chairs the House Taxation Committee, said the state would not be able to afford a $1.5 billion budget cut unless all other tax cuts, including the continued reduction in sales tax on food, they weren’t off the table.
“And even if that happens, budget cuts would probably also be needed to fund the income tax cut,” Smith said.
Smith said he supports the idea of implementing some form of flat tax to simplify the tax code and get rid of the progressive tax policies that have targeted wealthy Kansans. An alternative solution, he said, would be to try the flat rate at a higher percentage.
“If the 5% rate isn’t affordable all at once, maybe we could adopt the concept of a flat rate at a higher rate to make it more affordable and go down to 5%? We’ll see what the economic outlook and data show,” Smith said.
Smith also believes Kansas needs to reduce its corporate tax rate to attract more businesses to Kansas.
“Not all Panasonics are able to negotiate special incentives because they are so big,” Smith said. “We need small businesses in our state too.”
Mike Pirner, a spokesman for Senate President Ty Masterson, said Masterson supports a flat rate but has not approved any specific legislation in this session.
Masterson “has consistently voiced his support for structural reform that includes moving Kansas to a single tax rate, with enough exemptions so that all taxpayers benefit,” Pirner said. “Lowering taxes on those making more than $15,000 a year, by definition, means lowering taxes on middle-class families who have felt squeezed by inflation, whether it’s higher rents, higher gas prices or more expensive trips to the supermarket”.
In her state address earlier this month, Gov. Laura Kelly proposed quickly eliminating the state’s 4 percent sales tax on groceries and increasing the income tax exemption related to the state’s taxation of family benefits. social Security.
Kelly warned that she would not sit idly by as the 2023 legislature pushes through tax cuts that are harmful to the state’s fiscal condition. She refreshed the memory of lawmakers about what happened in 2012 when the then governor. Sam Brownback aggressively cut state income taxes.
The result has not been increased economic development. Instead, the changes gutted the state treasury and brought years of budget cuts. In what Brownback called a tax “experiment,” the state cut agency services, went into debt, borrowed heavily from the highway fund, skipped payments to the state employee retirement fund, reduced payments to fostering agencies and reduced funding for public schools to unconstitutional levels.
Brownback subsequently signed legislation blocking a planned reduction in the state sales tax from 6.3% to 5.7%, raising the rate to 6.15% to replenish the treasury. In 2015, Brownback signed a bill increasing the state sales tax to 6.5%.
Most of Brownback’s tax program was repealed by the Republican-led legislature in 2017 due to the GOP governor’s veto of the bill.
“Let me clarify,” Kelly said, “I will oppose any irresponsible tax proposal that erodes that basis. We’ve been there before. We know where it leads. And we can’t go back. Don’t go into debt. Dilapidated streets. An overwhelmed foster care system. And perhaps most devastating of all, underfunded schools. We can’t go back to the days when financial irresponsibility here in Topeka deprived our Kansas students of opportunity.”