Business Tax Exemption Not a Roadmap to a Stronger Economy

May 28, 2015

The driving argument behind eliminating income tax from many Kansas businesses is not working as intended.  The promise was that business owners would save so much money they would create jobs and would bring more people to our state.  But when you dig deeper into how that exemption works and who benefits it becomes clear that job creation isn’t even possible under this policy.

One big reason: the amount of money the typical business owner saves isn’t even enough to hire one part-time employee.  In the meantime, Kansas loses the resources needed for quality schools, good transportation, and safe communities – the real building blocks of job growth. More than half of the small businesses benefiting from the tax changes saw a savings of just $158. That’s because when you deduct salaries and other expenses, most small businesses don’t turn huge profits.

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Less than 1% of all Kansas small businesses saw a tax savings of just over $38,000. This might be enough to hire one worker full-time, depending on wage and benefits. But, if you were to hire a full-time employee with that money, after paying for benefits the take-home pay would be $26,600 or about $12.80 an hour. That’s barely above the federal poverty level for a family of three – not a roadmap to a stronger economy.

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Another problem with the exemption is how unbalanced it makes taxes in Kansas. Today, owners of these businesses don’t pay a penny in income taxes, while minimum-wage employees working at the same business do. Another example: if you are an accountant working in a firm that you don’t own, the state still collects taxes on what you earn, but if you are the owner of that firm, the state gives you a free pass on paying income taxes, based on the 2012 tax changes.

While most working Kansans continue to pay their fair share in income taxes to help educate our kids, keep our cities and towns safe and healthy, and our roads smooth and well-maintained, there are many thousands who don’t have to under the tax cuts. That means that if Kansas has any hope of filling the nearly $800 million gap between what the state has and what it takes to meet public needs it will mean increases in sales taxes and other levies. And that means low- and middle-income Kansans will be the hardest hit.

Whether the issue is raising the resources Kansas needs, or doing so in a way that everyone shares the responsibility and the wealthiest aren’t exempted, common sense says it’s not right for average Kansans to pay more income tax than the more than 330,000 business owners.

ClayBusiness Tax Exemption Not a Roadmap to a Stronger Economy