With tax cuts come tax shifts
Published on -10/7/2012, 12:58 PM
Most Kansans track politics closely when elected officials are fiddling with changes in taxes and are savvy in understanding how such changes will affect their pocketbooks. However, the massive tax cuts recently enacted by state lawmakers have left many Kansans unaware of underlying shifts in the tax structure that will move the tax burden from wealthy Kansans to those with middle and lower incomes.
What do we know about who pays taxes before the tax cuts?
The only publicly available study of who pays state and local taxes in Kansas was commissioned by the Kansas Department of Revenue a few years ago. This study showed that state taxes tend to be regressive overall.
Lower-income Kansans pay more of their income toward property and sales taxes than do higher-income Kansans. On the other hand the state income tax offsets this bias: higher-income Kansans pay more of their income toward income taxes, compared with lower-income Kansans, or at least did so prior to the tax cuts.
Why are many Kansans not aware that tax cuts mean tax shifts?
First, a bill reflecting Gov. Sam Brownback's tax plan was not available until weeks into the legislative session, and after that, the torturous process of stops and starts short-changed debate and ultimately left flaws in the final legislation.
Second, the full effect of changes in state taxes will not be felt until calendar year 2014 and beyond.
Third, Brownback and his opponents have jousted on issues other than the shifts in who pays taxes as a result of the cuts.
For example, Brownback and his revenue secretary crisscrossed the state and focused attention on eliminating all state income taxes for 191,000 businesses as part of his "pro-growth" agenda, optimistically projecting the creation of 22,900 new jobs, beyond normal growth by the year 2020. Even if the administration's projection comes to pass, producing just over two new jobs each year for every 1,000 people in the Kansas workforce is more like a low-dose aspirin than "a shot of adrenaline into the heart of the Kansas economy" as Brownback asserts.
Also, Brownback's opponents have raised their alarm on the $4.5 billion deficit projected to occur as a result of the tax cuts and the impact of that deficit in diminishing the state's ability to fund education and assist vulnerable Kansans. They point to cuts in existing programs and Brownback's order that state agencies prepare budgets based on a 10 percent reduction in spending.
So, how do Brownback's tax cuts change who pays taxes?
The good news is that all state income taxpayers will benefit from the cuts, but the disparity in who benefits is dramatic. The Kansas Department of Revenue estimates that the state's 285,000 low-income taxpayers, those with incomes of $25,000 and below, will receive a $46 tax cut, compared to a $9,792 tax cut for the 21,000 taxpayers with incomes of $250,000 and above.
Stated another way, low-income taxpayers, who make up 26 percent of all tax filers, will receive less than 2 percent of the estimated $717 million tax cut, while the top group, who comprise less than 2 percent of filers, will take home $207 million in tax cuts, or 29 percent of the benefit. The estimates show similar but less extreme disparities when other categories of higher- and lower-income taxpayers are examined.
The facts speak loudly: Brownback and his legislative allies have dramatically shifted the state tax burden from higher-income Kansans onto lower-income Kansans, and the progressive nature of the state income tax has been substantially eroded.
The principle of fairness that has guided major changes in state tax policy throughout Kansas history has been abandoned. Brownback's "pro-growth" tax cuts, coupled with his stated desire to move more funding of state obligations to higher and more regressive sales and property taxes, are blatantly unfair to middle- and lower-income Kansans.
H. Edward Flentje is a professor at Wichita State University.