Topeka A tax research center says a major part of Gov. Sam Brownback’s tax overhaul would create a new giveaway to large businesses at the expense of state services and other taxpayers.
“This one is really unprecedented,” said Michael Mazerov, a senior fellow with the Washington, D.C.-based Center on Budget and Policy Priorities.
Under the plan by Brownback, a Republican, tens of thousands of businesses would not pay taxes on certain business income.
Brownback has said his “fairer, flatter and simpler” plan will spur business growth and encourage financial investment in Kansas while providing enough to fund core government functions.
It eliminates income tax on nonwage business income and could affect 191,000 filers. The Brownback administration has called this a “unique and highly targeted strategy to make Kansas an incubator for innovation and a national center for entrepreneurship.”
But the nonpartisan Center on Budget and Policy Priorities says Brownback’s proposal would provide a tax break on what is called “pass-through” profits, which would benefit many large corporations and wealthy owners of large investment funds that have no employees.
These large corporations are organized as partnerships, Subchapter S corporations and limited liability companies, the center said.
Under the proposal, the state would lose a lot of tax revenue, the center said. IRS data show the profits from pass-through entities and sole proprietorships represent about 8 percent of the Kansas personal income tax base, or $266 million. A $266 million loss of tax revenue is greater than the combined state appropriations for Kansas University and the KU Medical Center.
“The major beneficiaries of such a giveaway are unlikely to be the small businesses and job creators that Gov. Brownback says he is intent on helping. Instead, the benefits would flow in great measure to large, established businesses, some of which don’t even have employees,” the center said. House Republican leaders have also signed on to this portion of Brownback’s plan and another one: elimination of the state portion of the Earned Income Tax Credit, which is a refundable tax credit for low-income working families.
Mazerov said this is another mystifying aspect of the tax debate in Kansas.
“(The EITC) is one tax policy for which there is a very bipartisan approach in most states,” he said. The tax center is called liberal by some conservatives, but Maserov says he disagrees with that. He said the center favors fiscally responsible tax policy.
Brownback has said that the EITC is fraught with fraud and that revenue saved from the credit can be used to lure more federal dollars and pay for programs for the poor.
But advocates for the poor and children have defended the EITC.
“More than 90 percent of Kansas’ EITC dollars go to families with children, and maintaining this tax credit is critical to ensuring that more children do not fall below the poverty line,” said Shannon Cotsoradis, president and chief executive officer of Kansas Action for Children.
She said studies estimate 4,000 Kansas children would fall into poverty without the EITC.