TOPEKA — Assessments by the Kansas budget director and an independent tax policy institute Monday showed the flat tax proposal by the Kansas Chamber would reduce the state budget by $1.5 billion per year and primarily benefit the state’s highest wage earners.
The Kansas Chamber, which wields substantial influence in the Statehouse, introduced a plan setting an individual income tax rate of 5% for annual income above $15,000. Under current law, the state’s graduated individual income tax rates stand at 3.1% for income under $15,000, 5.25% for income between $15,000 and $30,000 and 5.7% for income above $30,000. The income amounts are doubled for couples filing jointly.
In addition, the Kansas Chambers proposal, introduced in House Bill 2061 and Senate Bill 61, would establish a 5% corporation tax rate on taxable income. The current assessments on corporate income in Kansas: 4% on taxable income with a 3% surtax on taxable income in excess of $50,000. The bill also would cut by more than 50% the surtax rate for banks, trusts and savings and loan associations.
Provisions in the bill also would create a procedure to allow individual and corporate income tax rates to decrease in future years.
Adam Proffitt, director of the state budget, released an evaluation of the bill’s financial impact on the state treasury. In the fiscal year starting July 1, the legislation would slash state revenue by $428 million. In the second and third years, the reductions from current revenue would total $1.45 billion and $1.54 billion.
Those figures are consistent with an analysis from the Institute on Taxation and Economic Policy, a Washington, D.C.-based nonprofit that provides research on state and federal tax policies. Kansas Reflector asked ITEP for an analysis of the Kansas Chamber’s proposed legislation.
ITEP estimated 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 Chamber’s plan.
Overall, the institute predicted 49% of the individual income tax reduction in the Kansas Chamber’s proposals would go to the richest 20% of Kansans. The bottom 20% of earners would receive 4.1% of the tax reduction.
“Kansas lawmakers have a well-documented history with irresponsible and regressive tax cuts,” said Dylan Grundman O’Neill, a senior analyst at ITEP. “Instead of prioritizing more tax cuts, they should instead help middle- and low-income Kansans by protecting state investments in key economic building blocks like good schools, safe roads and thriving communities.”
More than 80% of the business tax cut described in the Kansas Chamber’s bill would go to out-of-state shareholders of large corporations.
ITEP said the annual $1.5 billion 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 Chamber’s top priorities this year in the Statehouse.
Eric Stafford, the Kansas Chamber’s top lobbyist, said the organization’s legislative agenda, with heavy emphasis on tax policy, was designed to improve the state’s economy.
“We need to become more competitive,” Stafford said. “We need to grow. We need to attract more business investment. We need to attract individuals here. And, it’s not just necessarily income taxes. We’re the sixth-highest cellphone tax burden in the nation.”
Sen. Ethan Corson, a Fairway Democrat, said the state can’t afford the Kansas Chamber’s flat tax plan — “not even close.”
“I think it’s dead on arrival, or it should be dead on arrival,” Corson said.
Corson said the Kansas Chamber’s proposal would require the “gutting” of transportation funding, failing to meet obligations to the state employee retirement system, and not constitutionally funding public schools.
Instead, Corson said, tax policy should be focused “on the folks who need it,” meaning lower-income and middle class Kansans.
“We do have the ability to cut taxes,” Corson said. “Just like every other legislator in this building, I would love to tell my constituents that we are cutting their taxes. I think there is room in the budget to do it.”
In the State of the State speech earlier this month, Gov. Laura Kelly proposed quickly eliminating the state’s 4% sales tax on groceries and raising the income tax exemption related to state taxation of Social Security benefits.
Kelly warned she wouldn’t sit idly while the 2023 Legislature pushed through tax cuts damaging to the state’s fiscal condition. She refreshed the memory of legislators to what happened in 2012 and 2013 when then-Gov. Sam Brownback aggressively slashed state income taxes.
The result wasn’t a surge in economic development. Instead, the changes gutted the state treasury and brought on years of budget cuts. Under what Brownback referred to as a tax “experiment,” the state slashed agency services, took on debt, borrowed heavily from the highway fund, skipped payments to the state employee pension fund, shorted payments to foster care agencies and lowered funding for public schools to unconstitutional levels.
The bulk of Brownback’s tax program was repealed by the Republican-led Legislature in 2017 over the GOP governor’s veto of the bill.
“Let me make myself clear,” Kelly said, “I will stand against any irresponsible tax proposals that erode that foundation. We have been there before. We know where it leads. And we can’t go back. Not to debt. Crumbling roads. An overwhelmed foster care system. And perhaps most devastating of all, underfunded schools. We cannot go back to the days where financial irresponsibility here in Topeka robbed our Kansas students of opportunity.”
Kansas Reflector is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kansas Reflector maintains editorial independence. Contact Editor Sherman Smith for questions: info@kansasreflector.com. Follow Kansas Reflector on Facebook and Twitter.
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