Archive for Friday, January 16, 2004

Tax plan goes easiest on the rich

January 16, 2004

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— Gov. Kathleen Sebelius' tax bill to fund a $304 million increase for public schools would hit middle-income and low-income Kansans the hardest, according to tax experts.

And it is the kind of tax increase that Democrats in the Legislature have fought against for years, though most now seem willing to accept the plan by Sebelius, who is a Democrat.

"You have to look at the art of the possible and what will generate the most votes," said Rep. Bruce Larkin of Baileyville, the ranking Democrat on the House Taxation Committee.

Sebelius has proposed adding a 5 percent surcharge on state personal income tax and raising both the state sales tax and property tax.

In 2002, nearly all Democrats in the Legislature opposed state sales tax increases pushed by former Gov. Bill Graves, a Republican, to balance the budget. Then, Democrats were arguing the increases would fall disproportionately on poor Kansans.

But Democrats now are willing to support Sebelius because the tax increases are earmarked for schools, Larkin said.

House Tax Committee Chairman John Edmonds, a Republican from Great Bend, said he saw nothing unusual about the Democrats' change of attitude.

"The fact that the Democrats want to support their governor is a good thing," he said. "Party unity is a good thing. It's something they do better than we do."

Regressive plan




But the Sebelius plan would do nothing to change a Kansas tax system that has been described as regressive because it takes a bigger percentage of taxes from people who can least afford to pay. For example, the sales tax on a gallon of milk is the same if the buyer makes $10,000 per year or $100,000 per year.

A recent review of taxes across the nation found Kansas' system unfair to poor and middle-income people. The review, by the Institution on Taxation and Economic Policy, a nonprofit, nonpartisan tax policy research group, said the system's reliance on sales taxes, where everyone pays the same rate regardless of income, was mostly to blame. Property taxes also played a role.

"The result for Kansas was no one pays more than the very poorest taxpayers and no one pays less than the very wealthiest," said Matt Gardner, state tax policy director for the Washington, D.C.-based group.

Gardner said Sebelius' new tax plan wouldn't help that situation.


Sebelius tax increase

Under Sebelius' proposed tax increase, the state would assess a state income tax surcharge of 5 percent, which would apply to personal income tax, not corporate income taxes.

Sebelius' plan also would increase the state sales tax from 5.3 cents per dollar to 5.5 cents per dollar July 1, then increase it to 5.6 cents on July 1, 2005, and to 5.7 cents on July 1, 2006. The measure also would increase the statewide school levy by one mill on July 1, 2005, and by another mill July 1, 2007.

Kansas has a program to refund to low-income residents the state sales taxes paid on food, but Sebelius' proposal doesn't expand that program.

Gardner said the tax policy institution was analyzing Sebelius' proposal. The group's first glance, though, showed "it's not going to be a very progressive hike overall."

But, he said, the proposal appears similar to ones that have gained political support in other states that are trying to cope with tight budgets and demands for increased spending, especially in education.

"If you look around the nation at states where the governor and legislature have put together real packages ... what you see is they are doing exactly what Governor Sebelius has done. They are looking at a number of different sources, a spread-the-pain approach," he said.

Asked to respond to questions about the regressiveness of the governor's tax proposal, Sebelius' spokeswoman Nicole Corcoran said, "Governor Sebelius believes this is how best to spread the responsibility for our schools in a fair, reasonable way."

Paul Johnson, a lobbyist for the Public Assistance Coalition of Kansas, said of the tax proposal, "I'm pleased that it is somewhat balanced, but it is heavily weighted to the sales tax."

Larkin said he thought the Sebelius proposal was sound because it was easy to understand. He added that there would certainly be attempts to change it.

Perhaps, he said, if the Legislature approved expanded gambling, revenues from that could be used to reduce the impact of the tax increase on low-income Kansans, he said.

"If gaming becomes part of the mix, I could see some of the tax proposals being rolled back," he said.

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