Legislators need to right the tax wrong
Politics being what they are in Kansas, taxes can be cut with ease and relish but readjusted upward only with extreme difficulty, and perhaps a disproportionate shift of the burden onto those least able to pay.
That’s why many state leaders, now forced by an $800 million budget shortfall to look for more revenue, are talking less about revisiting the dramatic reductions to state income taxes passed in 2012 than about raising the statewide sales tax, fuel tax, liquor and tobacco taxes, and even the property tax (by axing the homestead exemption of the first $20,000 of a residential property’s value from the statewide levy for schools).
Yet some, including Rep. Mark Hutton, R-Wichita, increasingly seem to understand that too many of those 330,000 “business owners” now exempted from state income taxes are not and never will be job creators, that the exemption isn’t attracting employers to Kansas or otherwise boosting economic growth, and that fairness and fiscal responsibility demand a legislative repair job.
As Senate President Susan Wagle, R-Wichita, also has noted, “it’s unfair tax treatment” for the state to demand income taxes be paid by an accountant or engineer on a company payroll but not by those in the same field who are self-employed.
Such arguments put these legislators in the unfamiliar position of being at odds with Gov. Sam Brownback and the Kansas Chamber of Commerce and other business groups. The odds are against their approach prevailing as the Legislature tries to pass a balanced two-year state budget and adjourn the session.
But “the individual tax savings are not significant enough to spur employment growth or lure companies to our state, yet it’s costing our state over $200 million,” Hutton said last week, arguing that the “financial reality of our state and the basic tax policy fairness” require action.
According to the state, just 5.3 percent of the business filers enjoying the exemption represent $171 million of the total $205 million annual revenue hit to the state.
Hutton and Rep. Marvin Kleeb, R-Overland Park, offered a bill under which business owners with at least one full-time employee or the equivalent would pay income taxes at the 2.7 percent rate and those without employees would receive no tax break. The legislation would bring in an estimated $232 million for fiscal 2016 and $176 million for fiscal 2017. It also would restore taxation of rental, royalty and other “passive” income.
Another proposal by Sen. Les Donovan, R-Wichita, would replace the exemption on pass-through business income with a tax credit equal to 1 percent of the business’ payroll.
The predictably fierce push-back, led by the Koch-funded business groups, is that the tax cuts need more time, that the real problem is state spending, and that money in Kansans’ pockets is always preferable to money in state coffers. But such lobbyists have been hard-pressed to be specific in saying how the state can cut its way back to balance.
And as Donovan noted in frustration last week, as most of the tax-hike proposals went nowhere in his Senate committee: “We’re not trying to raise $10,000, you know, for a bake sale. We’re trying to get the budget fixed for the state of Kansas.”
Praise and encouragement are due the prominent GOP lawmakers seeking to right the wrong of the tax reform, and in the right way.
For the editorial board, Rhonda Holman
This story was originally published May 9, 2015 at 7:06 PM with the headline "Legislators need to right the tax wrong."