The Facts About Kansas Tax Proposals
In a financial crisis, everyone should be asked to do more. Everyone — individuals and families of all income levels as well as businesses of all sizes.
It is unconscionable to give a free ride to some businesses and favor higher wage earners while proposing substantial increases on lower wage earners in order to address the fiscal crisis in Kansas.
For the past several weeks, various members of the Kansas Legislature have been discussing flat income tax plans to address the ongoing, multi-year State revenue crisis. All of the flat tax proposals being discussed are unacceptable as they all inflict an enormous tax increase on lower wage earners and result in a significant proportion of Kansans having higher income taxes than under the high pre-2013 rates (i.e., 3.5%, 6.25%, & 6.45% brackets).
Governor Brownback announced on Wednesday he endorses a 4.6% flat tax being discussed in the Kansas Senate. Here are the facts about this plan:
- It raises income tax on families in the current lowest tax bracket (at or below $30,000) by 70% while those at much higher incomes see only a single digit percentage increase.
- Starting at $30,000, this plan charges every family $570 more in taxes. Even if you make $100,000,000, you have the same tax bill increase as someone making $30,000 — $570.
- Families making less than $50,000 in taxable income would be worse off than under the high pre-2013 income tax rates that so many in the Kansas Legislature protested were outrageously high.
- This plan would mean higher tax rates than the pre-2013 rates for a significant proportion of Kansas families. Here’s more detail on taxable income.
Here is a chart outlining the impact of the 4.6% flat tax at various income levels:
A whole range of flat tax percentages from 3.9% to 5% have been bantered about. They are all extremely problematic. Don’t be fooled by talk about rolling back food sales tax by 1%. If a family spends $500 on groceries per month, a 1% sales tax reduction would give them an extra $5. This is a drop in the bucket compared to a $570 income tax increase.
The February 2017 proposed transition back to three tax brackets (2.7%, 5.25%, and 5.45%) and roll back of the LLC business exemption that fell only a few votes short of a veto override in the Kansas Senate was a reasonable approach that should certainly be revisited. The impact of this plan on Kansas families is detailed in the chart below.
From my perspective there are several goals a new tax plan should honor:
- Ensure all individuals and families end up better off than under the previously much higher tax rates pre-2013.
- Make all businesses (even LLCs/small businesses) contribute to the fiscal health of the state.
- Generate the revenue necessary to address the ongoing and future fiscal shortfall.
- Appropriately fund our important priorities.
In light of these goals, is it essential to end the free ride for small businesses and independent contractors earning pass through incomes via an LLC or S-corp. Everyone has a responsibility to help get the state back on track.
We should consider an everyone can do something approach to adjusting income taxes. I am including two illustrations below that allow everyone to contribute to addressing the crisis while limiting the severity of the impact for lower income Kansas families as well as keeping the impact across incomes at a reasonably similar level. The precise percentages could be adjusted to hit particular revenue targets. These simply illustrate two approaches that allow relatively proportional contributions to the crisis across income levels.
Everyone Contributes — Example 1 (Income up to $30,000 taxed at 2.85%, above this at 4.9%)
Everyone Contributes — Example 2 (Up to $30,000: 2.85%, $30,000 to $100,000: 4.9%, over $100,000: 5.2%)
If you agree with the priorities/goals I have shared and like one of my proposed models or a similar approach, please take the time to contact your State Representative and State Senator. If you are uncertain of their name or how to contact them, you can find out by entering your address into this website: OpenStates.org — Find Your Legislator