December 7, 2011

Brownback hopes to restructure income tax

Gov. Sam Brownback Tuesday hinted at a new state income tax structure with lower rates but fewer exemptions and a future state employee retirement system more like a 401(k) plan than a pension.

Gov. Sam Brownback Tuesday hinted at a new state income tax structure with lower rates but fewer exemptions and a future state employee retirement system more like a 401(k) plan than a pension.

“We’re going to propose a different taxation system, with same static revenue, flatter, simpler, fairer,” the governor said in an interview with Eagle reporters and editors.

Lower taxes, he said, will lead to growth.

“You really got to get your growth going, growth has to take place. That solves 60 to 80 percent of your problems.”

“Most every economist will say get your social engineering out of the tax code, lower your rates, broaden your base,” he said. “You want to monkey around with stuff, do subsidies on it, do things, but do not do it in your tax code.”

As part of his reworking of the tax code, Brownback said all types of credits, exemptions and deductions are on the table as potential cuts, even those that carry into state income taxes from the federal level.

His goal, he said is “getting it out of there so you get your rate down.”

Brownback said he wants to lower taxes because “We’re bleeding taxpayers in Kansas and have for some time ... we net lose, over the last 10 to 20 years, about 3,000 taxpayers a year.”

The largest number, he said, are leaving Kansas for Texas, which has no state income tax.

But Kansas is also losing taxpayers to every neighboring state but Nebraska, he said.

Brownback acknowledged that there could be other reasons, including job availability. But he said the correlation between tax rates and people moving to other states is strong.

“You look at (income and sales tax) rate structure, we’ve got virtually the highest rates in the region except for Nebraska,” he said.

Criticism of the plan

Although the specifics won’t come out until the governor’s State of the State speech Jan. 11, Brownback’s plans to reduce income taxes have encountered some criticism, including from about 100 people who gathered for a Wichita town hall meeting last week.

Critics are concerned that Brownback’s plans will lead to higher reliance on sales and property taxes, which fall more heavily on the poor and middle classes. They’re also concerned it will mean more cuts in school operating funds and money to care for elderly and disabled people. Brownback has said that his proposal will initially call for static revenue.

Although Brownback has confirmed consultation with Arthur Laffer – the architect of President Reagan’s supply-side economics – he defended his decision not to disclose the other outside individuals who are guiding his tax policy.

“We are trying to come up with our proposal and we need to have an internal discussion about what we’re coming forward with on a tax policy,” he said. “I don’t think that’s unreasonable for an administration to try to work interior-wise to come up with its own proposal, because as soon as you say or announce something, well, that becomes administration policy.”

Brownback said he probably won’t be advocating for dropping sales tax exemptions. Utilities and business machinery are the only sectors where there’s a potential for much gain.

And previous efforts to address sales tax exemptions have gotten lost in arguments over tax breaks for churches, charities and Girl Scout cookies.

The governor said former and current lawmakers have warned him that taking on sales tax exemptions would be “a big fight for not a lot of money.”

Change for KPERS

Brownback said his plan for the Kansas Public Employee Retirement System will take shape later this week.

He said he expects the task force studying the issue to recommend transitioning the system from defined-benefit plan where employer provides a pension to defined-contribution plans that requires employees to contribute to their own retirement much like the 401(k) plans that most private employers offer today.

Under his plan, current employees could keep their pensions while new hires would get defined-contribution plans, he said.

He said he sees the state plan as a precursor to reforming Social Security along similar lines.

Brownback said he would implement the switch the “same way that private-sector guys did 20 years ago.

“You end your bleeding, say OK, we’re not going to continue to add that and then you have to have a transition mechanism,” he said.

That mechanism could involve borrowing money to cover current pension liabilities, now estimated between $6 billion and $8 billion, he said.

A coalition of teacher and public-worker unions is planning to oppose the changes when the Legislature returns to session Jan. 9.

Brownback opponents say his plan would subject public workers to increased risk and make them susceptible to stock market crashes like in 2008, when millions of private-sector workers and retirees saw large portions of their 401(k) savings evaporate.

Brownback also plans to recommend that the State Fair start one week earlier to help boost attendance. He would like the fair in Hutchinson to start during Labor Day weekend to take advantage of the three-day weekend.

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