Editorials

Reduce state sales-tax exemptions

Simplifying the state's tax policies is complicated. But if lawmakers show political courage and eliminate some sales-tax exemptions, they could create a flatter and more fair tax system that could boost the economy.

Admittedly, that's a huge "if."

State Sen. Dick Kelsey, R-Goddard, stepped forward last month with a dramatic proposal to restructure and shift tax collections in the state. His plan would eliminate state corporate income taxes, eliminate the sales tax on groceries and reduce the statewide sales tax. He would recover the lost revenue by eliminating most sales-tax exemptions, including for churches and the Girl Scouts, and start taxing professional services, such as accounting and engineering.

There are some concerns with the plan. For example, taxing professional services could put Kansas at a competitive disadvantage, as no other state taxes these services.

But good for Kelsey for being bold and showing leadership — something few lawmakers were willing to do during the past legislative session.

Kansas Revenue Secretary Joan Wagnon recommended during the session that the state eliminate exemptions for some nonprofit organizations and for utility sales. The proposal, which was developed by the Kansas Advisory Council on Intergovernmental Relations, would have added about $200 million to the state's coffers, possibly eliminating the need to raise the statewide sales tax.

But the House gutted the plan, leaving only one exemption to eliminate: coin-operated laundry services. Then lawmakers didn't even remove that exemption.

That was disappointing, but not surprising. Lawmakers are skittish about changing tax policies, particularly if it could be portrayed as a tax increase on some campaign mailer. They also are appropriately cautious about shifting the tax burden. They need to evaluate who benefits and who would pay more under a proposed change.

There also are active constituencies for the tax exemptions, many of which, such as nonprofit groups, are doing important work.

But the result is that the number of exemptions has grown from 30 in 1985 to 96 in 2009, and those exemptions are limiting the state's ability to address other priorities, such as adequately funding public schools and improving the business climate.

The exemptions also can create an unlevel playing field, where politically favored groups get breaks while others don't. For example, Kelsey argues that it isn't fair that people who exercise at private health clubs pay sales tax on their memberships while those who go to the YMCA do not have to pay the same tax.

Making the tax system flatter and more fair and transparent ought to appeal to the libertarian-leaning tea party movement. It likely will take that type of groundswell to get lawmakers to act.

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