Dave Trabert: Kansas governor’s tax council paves the way for new tax hike

Gov. Laura Kelly knows it would be political suicide to propose an income tax hike ahead of her re-election effort, so her Council on Tax Reform is paving the way for her to do it if she’s re-elected.

It’s all been carefully choreographed over the last two years, and the council’s latest report is telling.

While supposedly designed to recommend “tax reform,” Kelly stacked her council to produce a specific outcome; with members currently or previously working for taxpayer-funded entities outnumbering private-sector members 14-2, they aren’t ever going to propose real tax relief.

The report has a smallish ($55 million) recommendation for a refundable food sales tax credit for low- and moderate-income taxpayers, but they more than offset that with two new sales taxes on marketplace facilitators and on digital products like Netflix subscriptions.

Their solution for sky-high property tax is gifting $54 million to cities and counties under the false pretense they will use it to cut taxes. That didn’t work in the past and it won’t now, either.

Now, here’s their head nod to a coming tax increase.

“Our collective notion of adequacy now may have changed significantly given the impact the pandemic has had not just on tax receipts, but also on demand for additional public-sector aid and support for individuals and businesses.”

Kelly and her tax council want most people to pay more tax, and here’s how they will justify an income tax increase on most Kansans.

The report makes a big deal about the folksy-sounding “three-legged stool” of income, sales and property taxes being “out of balance.” Proponents believe those three taxes should be about the same, but that has never been the case for state or local government.

State revenues are almost all from sales and income tax, with only about 1% from property tax, whereas local tax revenues are virtually all property tax and sales tax. Balancing the stool for state and local governments would therefore require a complete overhaul of how they each impose taxes.

Regardless, the Tax Council looks at combined state and local tax revenues, and income tax just happens to be the shortest leg. It accounted for 26.5% of all state and local taxes in FY 2019; sales, use, and excise tax was 32.7% and property tax was 36% of the total.

Their “adequacy” signal, calling for more tax revenue, combined with income tax being the shortest leg of the mythical stool will be the basis for raising income taxes.

Not to give merit to the three-legged myth, the reason that combined state and local taxes are allegedly out of balance is that property tax grew much faster than the other two sources.

In 1998, income tax accounted for 28% of total revenue, sales tax was 34%, and property tax was 33%. Since then, property tax shot up 140% while income and sales tax increased 108% and 110%, respectively. Instead of calling for the longest leg to be planed down, the Tax Council and governor want to bolt another tax hike on the short leg because they want to spend more.

The majority of Kansans know the state has a spending problem, not a tax problem.

But with 88% of Tax Council members rooted in government interests, look for them (and Kelly, if re-elected) to propose yet another income tax hike.