Opinion: A New Year’s resolution for fiscal sanity
In the spirit of the season this retired professor offers Kansas state lawmakers and their newly elected leaders a resolution for starting down the path to fiscal sanity.
First, end the tax experiment as the first order of business. Move state finance in the direction of tax fairness by putting 300,000 businesses back on the income tax rolls. Over two-thirds of all Kansans now believe the experiment has failed, and hard economic data confirms their belief. Public-spirited business owners also want this inequity scrapped. This step will not solve the $350 million deficit in the current fiscal year but could help, if acted on quickly, and could restore $200 million or more next fiscal year.
Second, reclaim all state sales taxes for general purposes. Stop the shell game of putting one of every six sales tax dollars in the highway fund and then robbing that fund. This action would reinstate the historic purpose of applying sales tax revenues to the core obligations of the state: public schools, state colleges and universities, and assistance to vulnerable citizens. This step could send $425 million to the state general fund and allow lawmakers to determine the appropriate allocation of those funds.
Highway lobbyists will protest loudly, but state highways should be funded by highway users, not low-income Kansans who pay a disproportionate share of the nation’s highest sales tax rates on food and may not even own a vehicle. If lawmakers have the backbone to shut the door on sales taxes for roads, road funding will still be roughly $900 million a year. Creative minds will also find ways for highway users to fund expanded road improvements, if needed.
Third, plug the leaks. Halt tax subsidies to businesses for projects of questionable economic value. State sales and income tax subsidies estimated at $125 million per year have been granted by state executives to a few selected businesses through the High Performance Incentive Program, Promoting Employment Across Kansas Program, and STAR bonds. State lawmakers should place a moratorium on authorizing new subsidies. A suspension of new projects would allow lawmakers time to assess whether these business incentives and others adopted years ago have continuing economic value to the state.
Legislative leaders should also focus a laser beam on capturing the hundreds of millions of dollars in lost revenue from internet sales that escape taxation to the detriment of Main Street businesses throughout Kansas.
Fourth, restore balance to the state and local tax structure. Balance and diversity in taxes assure lower tax rates overall, reduce competition with other states and promote tax fairness based on income. Kansas achieved near-perfect balance in its tax structure at the start of the 21st century by deriving equal proportions of revenue from its primary tax sources: property, income and sales taxes. Two recessions and a self-inflicted tax experiment have thrown that ideal out of kilter and aggravated inequities. Regressive property and sales taxes now carry over three-fourths of the tax burden, income taxes only one-fourth. Re-establishing balance in the three-legged stool of state and local should guide any action on tax policy.
Fifth, balance the budget. Balancing revenues and expenditures seems simple and obvious, but ideologically driven lawmakers have repeatedly failed at this constitutional obligation for the last five years. Once the Kansas Supreme Court acts on school finance, the magnitude of the heavy lifting required here will be known. Lawmakers will be expected to find common ground on spending for schools and other state obligations in tandem with the revenues required to support that spending. The ill-conceived tax cuts of 2012 will have to be part of this discussion.
No step down this path will be easy. But a new crop of legislators and their leaders appear ready to face reality and exercise common sense in restoring fiscal sanity to the state.
— H. Edward Flentje is professor emeritus at Wichita State University.