Bet the deed
Published on -10/20/2013, 1:40 PM
If you are an employee, you are paying Kansas income taxes on your paycheck.
If you own a business, starting this year, you are not paying Kansas income taxes on your business income that previously was taxed to you. This includes manufacturers, retailers, doctors, lawyers, farmers and others whose business income is taxed to them as individuals.
Our governor and Legislature have "bet the deed to the farm" that eliminating income taxes on business income will produce economic growth and job creation, which in turn will provide the necessary tax revenues to pay for our K-12 schools, universities, community colleges, technical schools, roads, public health services, courts, state police, prisons and other essential services.
This theory has been sold as a benefit to "small business." Unsaid is the fact that many substantial businesses with assets and sales in the tens of millions of dollars have owners who are taxed as individuals on their business income, and these owners will not be taxed in Kansas. Some "small business." This approach is extreme, to say the least.
With public attention focused on lower income taxes in general, many Kansans do not understand that they will continue to pay income taxes on their paychecks, while loosing tax deductions -- these lost deductions will act to increase their income taxes. While it is true that the individual income tax rates are being reduced for everyone, there is a big difference between paying income taxes and not paying income taxes. And the reduction is spread out over the coming years. How do we know that the rates will not be increased? Witness the sales tax increase by the Governor and Legislature this year from the lower rate the law required this year.
While in theory there is an argument that in some cases eliminating business income may stimulate the economy, a more balanced approach would seem more rational and fair to all taxpayers. The governor and Legislature should have adjusted the mix of taxes collected from income, sales and property taxes in order to fund the state's obligations. Instead, they chose the extreme path of eliminating income taxes on individual business income while relying on sales and property taxes, as well as continuing income taxes on paychecks. Kansas' favorite son, President Dwight Eisenhower, made it clear in a July 13, 1954, letter to a friend that he rejected extreme positions, whether in political or economic fields, instead choosing to solve problems in a "middle way" representing "a practical working basis between extremists." Count me in as supporting the "middle way."
How is the bet looking? Not too good at the moment. A recent forecast published by the Wichita State University School of Business notes unemployment in Kansas has grown, not declined, in the last year, while employment in Kansas is growing below the national average. That forecast is mirrored by an 18 percent decrease in income tax receipts in the three months ended Sept. 30 compared to the same period last year, according to the Kansas Legislative Research Department.
To hedge the bet and reduce the $2.4 billion accumulated deficit in 2018 forecasted last year by the Kansas Legislative Research Department, the governor and Legislature this year raised the sales tax rate as mentioned previously and eliminated various income tax deductions, in effect raising taxes. So revenue is being raised by tax increases and not by the hoped for increased economic activity. What just happened? Will the governor and Legislature raise taxes again in the future and on whom?
These are troubling trends. These are not the economic results we would hope for from the governor's and Legislature's bet. If these trends continue, there is bad news aplenty coming down the road. As the governor and Legislature will deserve the credit if their bet wins, will they accept the blame if the bet loses? And accepting responsibility for the lost bet will be the least of it, because by then the condition of our essential state services like our public schools, roads, health and other services enumerated above, will have been damaged by the lack of funding support over the intervening years.
We Kansans have always prided ourselves on our fine institutions and services as distinguishing Kansas from neighboring states. Our governor and Legislature should hear from Kansans that they want no part of this bet. Too much is at stake.
Bruce H. Wyatt