January 12, 2016
As the 2016 Kansas Legislature commenced its 2016 session Monday, our state fiscal and civic health looks worse than ever. Last week it was announced that December tax revenues were $35 million below the new lowered expectations for receipts, so the Kansas budget continues to sink deeper under water in spite of cuts and transfers imposed by Gov. Brownback in November.
Kansas can expect a deficit of $14 million June 30, 2016, according to the Legislative Research Department, the nonpartisan department in the legislative branch that monitors the state’s economic health.
The Kansas Revenue Department explained the bad news, specifying that individual income tax receipts were $25.9 million below expectations and state sales tax receipts are down $14 million. After the largest tax increase in state history last session, Kansas now relies on sales taxes to fund more than 50 percent of the general fund budget. Kansas has the highest sales tax on food in the nation.
Last year, the Tax Foundation found that Kansas is ninth of all 50 states in tax burden for residents like you and me. The foundation looked at the overall burden of the state’s residents, taking the total state and local-level taxes and dividing it by the average per capita income. The exact formula used to determine the tax burden takes into account how much residents pay in property, income, as well as sales tax levied at both the state and local level. They also compute what they believe is a portion of the business taxes that are passed along to residents in the form of higher prices or lower wages. The outcome of this calculation is the percentage of income that is used to pay state and local taxes. As a resident of Kansas, you are in one of the worst states for tax burden carried by its residents.
Secretary of Revenue Nick Jordan said, “It is the first time this fiscal year that individual income tax receipts have not grown compared to the prior fiscal year to date. It is too soon to tell if this is a one-time event or not.”
It is not surprising that Kansas families and individuals who have decreasing incomes and an increasing tax burden will not be spending as much, especially when the sales tax is higher than surrounding states, even for essentials like food.
Former Kansas Budget Director Duane Goossen, who served under Gov. Graves, Sibelius and Parkinson, calls the situation a “perpetual budget crisis.” Goossen, now with the Kansas Center for Economic Growth, calculates that the current year budget is about $175 million short of expected revenues. He says, “Kansas does not have any reserves left to deal with further revenue erosion. Even with lowered expectations, the new estimate predicts that tax collections will increase by 5.7 percent in FY 2016. However, through the first six months of FY 2016, actual collections have grown less than 2 percent from the previous year. The revenue estimators likely still have the revenue estimate set too high.”
Legislative leaders have vowed to keep this year’s session to 90 days or less, after the historic lengthy and costly debacle in 2015. Lawmakers must adjust the current year (FY 2016) budget which cannot be financed within present revenues and then formulate next year’s (FY 2017) budget to reflect increasing shortfalls. None of the common sense choices are pretty: more cuts to state services, tax increases, continuing to raid the state highway fund and numerous fee funds. Each option is likely to hurt Kansas residents and businesses. The cuts and voodoo fiscal management is already scraping the bottom of the barrel so hard that the bottom is getting a hole in it. For example:
- The Kansas Highway Patrol has morale and recruiting problems and is under staffed, as is the Department of Corrections where many of our neighbors work.
- Turnover of corrections officers is high due to low pay and tough working conditions in prisons that are over capacity.
- The Legislature has taken so much from the Kansas Bioscience Authority that half the staff has been terminated and the agency is considering going private or semi-private.
- The Osowatomie State Hospital is in danger of losing federal payments due to security issues and lack of compliance with federal regulations.
- The 2015 Legislature passed stealth legislation which suspends all statutory limits on highway debt, and that unprecedented authority was recently used to issue record-breaking levels of long-term debt after the governor swept $48 million from highway funds in November – all because of budget cuts, raids on dedicated funds and irresponsible management of the taxes we pay.
There is not likely to be any sort of tax increase or rollback in the income tax exemptions on many state businesses. Ironically, the Tax Foundation study that found Kansas as one of the most unfriendly taxing states for residents also ranks Kansas as just above the median in friendliness for businesses.
The purpose of taxes is to raise needed revenue, not to favor or punish specific industries, activities and products. However, tax policy is not just a revenue issue, it’s an equity and fairness issue and it’s an image issue for our state. Taxpayers should resist special breaks based upon status, like a tax break that gives businesses an incentive to become a LLC in order to pay no income taxes. Jobs cannot be created by simply giving a free ride to certain kinds of businesses.
The best tax policy results in broad-based burden and low tax rates for everyone. Targeted deductions, credits and exemptions for some entities and individuals result in shifting the tax burden on other taxpayers.
In Kansas, more and more of our tax burden is being shifted to fewer and fewer taxpayers, especially those least able to handle an increasing burden. If tax preferences are kept to a minimum, substantial revenue can be raised with low tax rates. Broad-based taxes also produce relatively stable tax revenues from year to year, allowing the state and its citizens to make long-range financial plans.
Read more from the Leavenworth Times here.