In the legislative discussion about cutting taxes, we believe there are a few key principles that should be in the bill sent to the governor. There are a few key items that everyone should agree on -- and get a bill to Gov. Sam Brownback.
A. It is about jobs. Employers create jobs, not employees. If Kansas is to grow, our tax system needs to encourage employers. Giving the typical Kansas tax filer a little more money has broad political appeal, but there are better ways to create sustained economic growth. Most Kansas families are like mine: We buy a lot of stuff for ourselves and our two school-aged children. Much of what we buy is not made in Kansas -- or even in America.
Tax policy should be about enticing manufacturing jobs to Kansas because manufacturers make things for the rest of the world. If the overall tax policy results in higher property taxes, then the average Kansan will not gain much ground and it will wipe out the limited benefit of a personal income tax cut.
B. It is not about the tax rate -- it is about the tax burden. Kansas uses an antiquated approach to determine what business income is taxable. Only 9 percent of Americans live in states that use the system Kansas uses -- these are the states that are not growing. Soon, nearly 37 percent of Americans will live in states that use the "Single Factor Sales" formula.
For example, Iowa has a higher rate than Kansas, but its tax burden is 227 percent less for identical firms than Kansas because they don't punish a business for having payroll and property. If Oklahoma lowers its rate, Kansas still can create a tax advantage by switching away from a system that punishes a business from having payroll and property in Kansas.
In an interview with the Salina Journal, noted economist Arthur Laffer agreed that my criticism of his work in "Rich States Poor States" was valid because he didn't account for single factor sales formula. The Tax Foundation's last report gave Kansas low marks -- and noted the lack of a single factor sales formula as a big part of the problem. The steps taken in the Kansas Senate Tax Committee were a good first step and hopefully the conference committee can do more to encourage job creation.
C. It is about jobs -- still The PEAK program is the most effective job incentive program in Kansas. It is an ideal program because it minimizes the role of government in picking winners and losers.
It is formula driven and creates a win-win incentive for businesses and employees. The funding mechanism for PEAK should be protected. Reducing PEAK with the intent of eventually creating more funding for the governor's "Deal Closing Fund" isn't a good deal. Kansas needs both tools to be very strong. Cutting personal income taxes will not help Kansas employers create jobs because it undermines the funding for PEAK.
D. Support those who own and operate their own businesses. The proposals related to income for LLCs and S-Corporations are a great way to encourage businesses to grow and hire more people. The same logic that supports this tax policy should also create robust support for the item above about single factor sales formula.
To us, a package of the items listed above are an excellent package for Kansas -- nothing more and nothing less. To date, legislation approved at the committee level in either the House or Senate contains each of the elements listed above. To us, a package of the items listed above is an appropriate way to grow Kansas by supporting sustained premium quality job creation via tax policy.
Dennis Lauver. president and CEO, Salina Area Chamber of Commerce