Gov. Sam Brownback has set a bold agenda for the current legislative session including a major overhaul of the state’s income tax system.
While the plan he has put on the table may have some merit, the disproportionate burden it places on low-income Kansans is raising questions that demand the close attention of state legislators.
The governor’s plan is good news for most higher-income taxpayers and especially for small business owners, but it holds considerable bad news for Kansans at the low end of the income spectrum. Figures compiled by the Kansas Department of Revenue estimate that the amount of income tax paid by Kansas residents overall would decrease by about 12 percent under Brownback’s plan. However, the way that saving is distributed is cause for concern.
The Revenue Department figures show that the 564,328 Kansas tax filers with adjusted gross incomes of $25,000 or less received a total refund of $1.7 million in the 2009 tax year. Under the Brownback plan, that same group would owe a total of $86.5 million, an average of $156 per filer. At the same time, the 21,158 Kansans with adjusted gross incomes of $250,000 or more would pay an average of $5,239 per person less under the Brownback plan.
The governor’s plan also eliminates a number of tax deductions that would have a significant impact on low-income taxpayers. Key among those is getting rid of the Earned Income Tax Credit, which benefits about 255,000 Kansans, generally low-income workers, by helping them keep more of what they earn. The plan does away with deductions for mortgage interest and child care expenses, which will have a significant impact on Kansas families with low or moderate incomes. The governor also is proposing that the state sales tax, which was scheduled to drop to 5.7 percent in 2013, be maintained at its current 6.3 percent. Sales tax is a particularly regressive tax, especially when it is applied to the sale of groceries, as it is in Kansas.
Also eliminated in the governor’s plan is the income tax deduction for charitable contributions, which likely would suppress donations to the very nonprofit organizations that could provide a helping hand to low-income Kansans. However, Revenue Secretary Nick Jordan and economist Arthur Laffer, who acted as a consultant on the Brownback tax plan, told legislators last week that money saved by eliminating tax deductions would be plowed back into social service programs to help needy families.
Making low-income people pay more taxes so that more money is available to fund programs for needy Kansans is a questionable strategy. Traditional conservatives would say that people know better than the government how to spend their money and could do so without adding the administrative costs of a government program to redistribute the funds to the “needy.” Is that the best justification the Brownback administration can offer for a plan that places additional tax burdens on low-income Kansans?
Laffer, who is considered the father of supply-side economics, maintains that the tax plan will pay off in the long run for low-income Kansans because it will lure more business to the state and create jobs. That certainly is a desirable goal, but Laffer’s economic theory is controversial and, some economists say, unsound.
Given today’s economic climate, the governor and state legislators face a serious challenge in how to update and improve the state’s income tax laws for the benefit of all Kansans and the state. It’s not an easy task, but most states are facing a similar challenge. Kansas lawmakers must give their best effort to devising a state tax plan that is fair and balanced for Kansas taxpayers. It’s time for a genuine nonpartisan study of the state’s income tax laws, not finger-pointing and political posturing.