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During the tax cut debate last year in Kansas, Governor Sam Brownback characterized his own radical tax cuts as a “real live experiment.” Now, following the actions of the legislature this past weekend, the experiment continues.
To fully understand the scope of the tax cuts that passed in a recent Sunday morning session, it’s necessary to review what was signed into law last year: Income tax rates were reduced (the top rate dropping from 6.45 to 4.9 percent and the bottom rate dropping from 3.5 to 3.0 percent). Kansas became the only state in the nation that levies an income tax to exempt all “pass-through” business income from the personal income tax base. A variety of targeted tax credits, including the Food Sales Tax Rebate, Child and Dependent Care Credit, and the Homestead Property Tax Refund for renters, were eliminated and the standard deduction for head of household filers and married couples was increased to $9000. The Institute on Taxation and Economic Policy (ITEP) estimated that the cost of the tax cuts would be $760 million.
Kansans hadn’t even had a chance to file income tax returns reflecting this slew of new provisions before Governor Brownback was advocating for yet another round of tax cuts. After several weeks of pretty cantankerous negotiations it became clear that the Kansas “experiment” would now have even higher stakes. As this ITEP analysis shows, it didn’t matter whether the House or the Senate plan was adopted because both of them pave the way for complete elimination of the state’s personal income tax.
Two groups that usually find themselves on opposite sides of tax debates, the Tax Foundation and the Center on Budget and Policy Priorities, agreed that the Kansas experiment part deux was “the worst in the nation.” But the Sunflower State’s elected leaders aren’t letting facts and policy experts get in their way.
Instead, Governor Brownback is expected to sign the new legislation that further reduces income tax rates (to 2.3 and 3.9 percent), reduces the standard deduction, increases the sales tax (from 5.7 to 6.15 percent), disallows 50 percent of all itemized deductions (except for charitable donations, which will be fully deductible) and allows for the potential elimination of the income tax entirely if revenues targets are reached. ITEP found that the bill would cost $186 million, raise taxes on the poorest 20 percent of Kansans but give every other income group a tax cut. The impact of these last two rounds of tax cuts in Kansas will be a whopping $1.1 billion, according to ITEP’s estimates (to be published soon).
Tax cuts don’t actually pay for themselves, and Kansans will likely face some serious fallout from their failed experiment. Lawmakers are on a path to complete elimination of the most progressive major revenue source the state levies (the income tax) and this will force the state to depend on regressive sales and property taxes to make ends meet. Phase one of this experiment made it a fiscal cautionary tale for other states, and its political leaders are making their state’s tax structure even more regressive.