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Earlier this year, Kansas Governor Sam Brownback proposed another round of personal income tax cuts (on top of those he signed into law last year that are creating a massive hole in the state’s budget). Read ITEP’s analysis of that proposal here. Now the Kansas House and Senate have each responded with their own tax cut plans, and are expected to reconcile their differences soon.
To date, much attention has been given to the major difference between the House and Senate plans — the Senate bill includes permanently preserving a temporary sales tax rate hike while the House plan would allow the hike to expire. What the two plans have in common, however, is what should be of paramount concern to all Kansans because both plans eventually lead to the elimination of the state’s personal income tax – which would grow the hole in the state’s coffers by another $2.2 billion.
Policymakers have not proposed a way to pay for this tax cut. Instead they are making an explicit assumption that income tax repeal will at least partially “pay for itself.” Kansas’ balanced-budget requirement means that the state will be forced to offset at least some portion of the revenue loss from income tax repeal, and it’s a sure bet that further increases in the state sales tax will be the primary remaining revenue-raising mechanism lawmakers would look to.
ITEP’s latest analysis runs some scenarios that show the impact on Kansas taxpayers of using a sales tax increase to replace various percentages of the revenue currently raised through the personal income tax. For example, if 50 percent of the revenues were made up with sales tax hikes, the poorest 40 percent of Kansans would see a net tax increase from this change and the state sales tax rate would have to be raised from 6.3 to 9.11 percent, pushing the statewide average state/local rate up to 10.86 percent.
Read ITEP’s full report here.
Kansas is one of several states contemplating a “tax swap” of some sort, but no state can meet its fiscal needs fairly and sustainably without an income tax — especially in the absence of extraordinary natural resources (like Alaska’s oil), for example, or out-of-state consumer dollars to tax (like Nevada’s tourism).