Be cautious on taxes

One way or another, state legislators could end up with a final tax-reform plan as early as today. But the fever to cut taxes must not be the death of fiscal responsibility.

There are some compelling reasons to cut taxes, including a projected budget surplus and Gov. Sam Brownback’s strong desire to administer a shot of “adrenaline to the heart” of the state’s economy.

But there also are reasons to be cautious, and too few in Topeka seem to be taking them seriously.

When the average annual growth of state spending over the past decade has been 4.8 percent, it seems imprudent to count on an annual growth rate of only 2.3 percent through mid-2018, as per the version of the tax plan drafted by House and Senate negotiators. It takes similar optimism to assume 4 percent annual growth in sales-tax revenue, when the state saw just 3.4 percent growth from 1992 to 2009.

It’s unknown how many businesses will reorganize so they can join the 191,000 partnerships, sole proprietorships, limited liability companies, and Subchapter S corporations slated for the biggest tax breaks – or how much revenue that will cost the state.

It will take a to-be-determined larger state contribution to the Kansas Public Employees Retirement System to address an $8.3 billion unfunded liability.

The state is being sued by school districts again, and also could face U.S. Department of Justice action over the long list of Kansans with physical disabilities who are waiting for home- and community-based services. Resolution of either issue could necessitate significantly more state spending.

Though the Brownback administration projects its KanCare reform of Medicaid will save the state $368 million over five years, what if it doesn’t?

Some worry that the tax cuts and resulting reduced revenues could put Kansas’ municipal bond returns in jeopardy.

Then there is the question of whether it’s fair to limit low-income Kansans to claiming either the earned income tax credit or the food sales-tax rebate – not both – while exempting six-figure business incomes from taxes.

Meanwhile, opinion polling has signaled that Kansans would rather see surplus dollars go to K-12 education and other programs deeply cut in the past few years, and that they’d prefer property-tax cuts to income-tax cuts.

If lawmakers slash taxes and declare victory, they may suffer neither remorse nor unpleasant consequences.

But a few years from now, those trying to balance the state budget and fund schools and other essential services may wonder what Brownback and the 2012 Legislature were thinking when they cut taxes so deeply – or whether they were thinking at all.

For the editorial board, Rhonda Holman