It's time for a right proper reform
Published on -6/2/2013, 3:58 PM
The Kansas Legislature -- the vast majority of whom are of the same party (Republican), and the vast majority of whom are all of the same ideology (conservative) -- have found it very difficult to find any kind of common ground on taxes. Taxes, of all things!
Who could have predicted this? The Legislature was supposed to be out of Topeka in 80 days. All was going to be "guns and roses."
And then, the taxing thing hit. The 2012 tax cut law was not as dynamic as advertised. The additional jobs, which were supposed to be created because entrepreneurs kept "their" money and invested it back in Kansas, did not produce any more jobs and it produced less tax revenue than would have been created in Kansas without it. And here's the big reality; it will never do so. There are a couple of major reasons for this.
Capital is fluid. In our global economy, capital will move to wherever the profits are greatest. We are a state of fewer than 3 million people in a global economy of more than 7 billion people. The calculus is straightforward. It's usually about labor costs, not tax policy. If production can be done for more profit overseas, it will be. Ask Nike or Apple.
However, when there are exceptions to this rule of thumb, location, location, location dominates, not taxation. Kansas does have some inherent advantages in the animal and natural resource extraction industries. Our location for these businesses helps us.
Unfortunately, for most other industries, our location does not help. We have long winters, no beaches with ocean views, and no mountain scenery; each of which can matter for where capital flows in the U.S. and the rest of the more developed world. Small business development is triggered in response to this flow of capital and the demands for goods and services that it creates. Tax policy has only a small impact.
So where does this leave us as a state? We are attempting to implement a solution -- elimination of income taxes -- that has no chance of producing its advertised effect, producing jobs, population growth and tax revenue beyond what we would have experienced without it.
Something tells me that this does not matter. Some of our duly elected leaders believe they are right and they are determined to implement their taxing vision. Given this reality, then we should at least reform our tax system the right way.
First, we should recognize the nature of the problem. Eliminating income taxes will lead to a greater reliance on property and sales taxes, both of which are by design regressive. In the past, our tax system used the progressive income tax to balance this regressivity. If we eliminate the progressive income tax, the regressive nature of our sales and property tax systems will disproportionately punish the poorest among us and elderly on fixed incomes. This is cruel.
Second, the sales tax can become more neutral if we apply it to the sales of all goods and services, exempting only groceries, physician services, and prescription drugs. A similar story also applies to the property tax. It too will be less regressive if we expand its base to all forms of property. Both reforms will ensure that all citizens and businesses will share the tax load and best of all, the tax rates for both types of taxes will be lowered. Third, when faced with what seemed like daunting policy reforms, our Kansas ancestors brought together political friend and foe into commissions, working groups or task forces. They accessed expertise and melded together ideas to develop policies to make Kansas a better place.
We need to follow the lead of our ancestors and create a "Taxing Commission" to properly reform our taxing system.
Joseph A. Aistrup is a political science professor at Kansas State University.