• Kansas: Group Intends To Pursue Comprehensive Tax Reform In 2017
  • March 8, 2017 | Authors: David D. Ebersole; David M. Kall; Susan Millradt McGlone
  • Law Firms: McDonald Hopkins LLC - Columbus Office; McDonald Hopkins LLC - Cleveland Office
  • In the last several weeks, there has been a flurry of activity to confront the ongoing budget crisis in the Sunflower State. In early December, the Kansas Center for Economic Growth held a press conference with various statewide leaders that presented a plan for comprehensive tax reform in 2017. The initiative, known as Rise Up Kansas, takes the position that Gov. Sam Brownback’s tax cut package, which he signed into law in 2012, has “inflicted more damage to state finances than the entire Great Recession.” The center describes itself as a “nonprofit, nonpartisan organization that conducts research and analysis to promote balanced state policies that help ensure all Kansans prosper.” Coalition members include groups such as the Kansas Action for Children, the Kansas Contractors Association, the Kansas-National Education Association, and the Kansas Organization of State Employees. 

    BACKGROUND

    This comes after events in 2016 that might have mitigated some of the damage, but did not. For example, at the end of April, lawmakers refused to repeal the pass-through exemption on business income, which the center refers to as the “LLC Loophole.” This exemption was so damaging because economists significantly underestimated the number of taxpayers that would take advantage of it, costing the state $348 million in revenue in fiscal 2016 and 2017. 

    Several months later, in August, a Center for Rural Affairs report declared that Gov. Brownback’s tax reform created budget shortfalls, lowered the state’s credit rating, did not produce the promised jobs, and caused an unnecessary and recurring school funding crisis. 

    And just a few months after that, in November 2016, the Kansas Division of the Budget’s State General Fund revenue estimate revised the revenue projections for 2017 and 2018 downward. One former budget director asserted that the tax cuts have only helped the wealthiest of Kansans, while hurting middle and low-income taxpayers because the benefits did not trickle down as promised. The governor, however, cited reductions in agriculture and energy production for the disconnect between projected and actual results. 

    CALLS FOR TAX REFORM IN 2017

    On this backdrop, the press conference highlighted the key provisions for Rise Up Kansas’ plan to modernize the tax code and broaden the tax base. These include the following:
    • End the “March to Zero,” which will stop the further phase out of individual income tax rates and prevent future budget crises.
    • Reinstate the top income bracket of 6.45% for single filers earning $40,000 a year or more, turning the tax code “right side up” so everyone chips in.
    • Clean up the tax code by closing the LLC loophole, thus ensuring that a select number of Kansans are not gaining at the expense of the common good.
    • Hold the Kansas Highway Fund harmless for the first time since Gov. Brownback took office, in January 2011. This can be accomplished by temporarily diverting the $.004 cent sales tax, which is currently dedicated to the State Highway Fund, to the State General Fund instead, for three years. In addition, pass an equivalent increase in the state gas tax of $0.11 per gallon.
    • Reduce the state sales tax on food by 1.5 percent, taking the rate from 6.5 percent to five percent
    The center estimates that these provisions will generate approximately $820 million for the state general fund in fiscal year 2018, while putting $100 million back into the pockets of Kansas families for groceries. 

    A center economist supports the “commonsense and straightforward” proposal: “...[i]t will fix the core problems plaguing our budget while holding the line or reducing taxes for 70% of Kansans. This fiscal mess presents a great opportunity for an overhaul, and no matter how lawmakers close the gap, we urge them to take a comprehensive approach.” 

    MOVING FORWARD

    Despite the generally accepted view that Gov. Brownback’s tax experiment is a failure, he continues to double down. Just before Christmas, Salon reported that he encouraged the federal government to “mimic the massive spending and tax cuts he implemented in Kansas — which have led to growing budget gaps, missed growth projections and two credit downgrades for the state.”

    That said, Gov. Brownback’s Jan. 10, 2017 state-of-the-state speech reflected some acknowledgement of the need for additional revenues, when he declared that he would “propose modest, targeted revenue measures to fund essential state services.” But he also stuck to his guns on the small business tax exemption and Medicaid reform, which now serves patients through a managed care program called KanCare. Under KanCare, the state contracts with several national, for-profit plans, deploys competitive bidding to set rates, and actively seeks to reduce risk. “By many measures Kansas is the envy of the world,” declared the governor. 

    In spite of Gov. Brownback’s upbeat speech, the above-mentioned anticipated $348 million budget deficit still stands. The center characterized its plan as the “chance to hit ‘reset’ on failed tax policy...[t]he Brownback tax plan just didn’t work, and now we’re at the end of the line. Let’s make the right decisions in 2017 so we can start investing in our children and planning for the future.”