Analysis Questions Fairness Of Kansas Tax System
Kansas already had the ninth-most regressive tax system in the nation, according to the Institute on Taxation and Economic Policy.
The tax increase signed last week by Gov. Sam Brownback to balance the budget and end the longest legislative session in state history will make the system less fair to low- and middle-income Kansans, said Matt Gardner, executive director of the nonpartisan think tank based in Washington, D.C.
“The tax changes the Legislature has just enacted do very little to fix what was wrong with the last two rounds of tax changes,” Gardner said, referring to the income tax cuts and sales tax hikes passed in 2012 and 2013.
“It’s generally recognized that the (income tax) cuts that were passed a few years ago at Brownback’s behest didn’t pay for themselves,” Gardner said. “They were unaffordable and they were unfair.”
Regressive tax systems rely more on sales and excise taxes and less on income taxes. That, according to the ITEP analysis, taxes the bottom 20 percent of taxpayers at effective rates up to seven times higher than wealthy taxpayers. Middle-income families pay effective rates up to three times higher, according to the report.
Gardner said if Kansas lawmakers wanted to solve the state’s budget problems and improve the fairness of its tax system, they should have revisited the 2012 tax cuts rather than increasing sales and cigarette taxes. In particular, he said, they should have reinstated income taxes on more than 330,000 business owners whose pass-through and passive earnings were exempted by the 2012 law.
“You would think that fixing what’s wrong with the Kansas tax system would start with that,” he said.
Rep. Mark Hutton, a Wichita Republican, spearheaded an effort to reinstate taxes on that business income but gave up the fight in the session’s final days when he and others couldn’t convince Brownback to back off a veto threat.
An ITEP analysis of all the state’s tax changes enacted since 2012, including this year’s tax package, shows that the poorest Kansans — those with an average income of $13,000 — will pay an average of $197 more per year in taxes while the wealthiest 1 percent will pay an average of $24,632 less.
At a news conference last week, and in several interviews since , Brownback has said that the recently passed tax package is not a tax increase. He contends that when taken as a whole, the tax changes enacted since 2012 represent a tax cut.
“Some would have you believe this bill represents a tax increase, and that is not accurate,” Brownback said. “When looked at in totality from 2012 to 2015, Kansans are paying less in taxes and continuing to move off income taxes to consumption-based taxes. The net of it is over a $300 million tax cut … for all Kansans.”
The ITEP analysis shows that even with the recent changes, approximately 60 percent of Kansas taxpayers will pay less than they did prior to the 2012 tax cuts. However, the bottom 40 percent will pay more, even though the tax package, starting in 2017, exempts more than 380,000 low-income Kansans from the income tax.
Gardner said many of the low-income Kansans exempted by the bill had little or no income tax liability as it was, in large part because of the tax credits for which they qualified. He said exempting them was little more than a “PR stunt” to make the tax package appear less regressive.
“It’s pretty insulting to low-income families to claim that increasing the income tax threshold is going to provide meaningful assistance to them,” Gardner said. “The bottom line is that low-income families are seeing a big tax hike as a result of this year’s legislative agreement.”
Kansas Revenue Secretary Nick Jordan said the department hasn’t yet calculated the average income tax liability of those being exempted. But, he said, “They had a tax liability.”
“The misinformation out there is that most of these people didn’t pay taxes anyway,” Jordan said. “Even after they did all the tax credits, they still had a tax liability and they’re now going to zero.”
Jim McLean is executive editor of KHI News Service in Topeka, a partner in the Heartland Health Monitor team.