A new study of five states’ recent tax reforms, conducted for the Koch-funded Mercatus Center at George Mason University, noted how Kansas made the “very controversial” move in 2012, as it reduced brackets and rates, to exempt “pass-through” profits from state income tax. “While this lowers the tax burden on businesses, it creates distortions in the way business owners choose to classify their operations,” the researcher wrote. “Moreover, it is inequitable because it disproportionately benefits high earners and creates an unfair playing field among businesses. Still, the reform did simplify the bracket structure, and the elimination of deductions and credits surely improved both efficiency and convenience. However, the adequacy of the tax system has been a concern, largely owing to the exemption of pass-through profits that effectively narrowed the tax base.” – Rhonda Holman
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