Secretary of Revenue Nick Jordan’s recent commentary on what he called the small business tax exemption does not add up and exposes the fundamental flaws in this policy (“Tax policy is helping small business grow,” Sept. 11 Opinion).
I served in the Kansas House for four years. After two years I realized that the current business exemption policy had a math problem.
Let’s start with the fallacy that LLCs, partnerships or even sole proprietorships are a “small business.” The form of a business entity does not dictate size of the company or its profitability. The form of the entity is usually dictated by how the company is capitalized or by the tax ramifications.
Jordan touted the 20,000 “new” tax filers as proof this policy is working. Nonsense. All this means is that 20,000 tax filers took advantage of a generous tax policy. It doesn’t mean they even live in Kansas or are a real business; it only indicates that they made money in our state and would have had a tax liability if not for the exemption.
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Jordan tries to minimize the policy by saying that 93 percent of the tax filers made only $75,000. Again, he ignores the math.
A Department of Revenue report for 2014 (the most current data) indicates that there were 331,174 tax filers who took advantage of the business tax exemption. Of those 331,174, almost 54 percent saved an average of only $182, and the 95 percent Jordan referenced saved an average of $1,046. Included in that are the 27 percent who lost an average of $603 because they were not able to deduct their business loss against other sources of income.
You can’t create a job with $1,046, and you certainly won’t be adding jobs if you’re losing money. It takes about $20,000 to pay a person minimum wage, including the payroll burden, and the average paycheck in Kansas is about $25,000. Less than 1 percent of the 331,174 tax filers realized enough tax savings to create a single job – and that’s if you believe that it only takes extra cash to create a job, regardless of whether or not the business has a task for the employee to perform.
Jordan is correct that state government has not done a good job of controlling spending, but this again points out a math problem. I worked on two separate two-year budgets during my tenure in Topeka. Both budgets submitted by this administration were based on increasing taxes on almost everything else but business income.
Fiscal responsibility has to begin with the governor submitting a responsible budget, based on performance-based analysis that reflects the reality of declining consensus revenue estimates. That has not been the case.
By the end of this year, Kansas taxpayers will have invested more than $1 billion into this business incentive policy. The majority of measurements indicate it has not worked. It is time to reevaluate the business tax policy for effectiveness and fairness.
Mark Hutton of Wichita is a Republican state representative in District 105.