October 22, 2015
The Kansas financial picture can be described in one word: crisis.
Last week the executive director of the Kansas Center for Economic Growth, Annie McKay, addressed a local public forum sponsored by the Emporia League of Women Voters. She noted that Kansas trails the region and nation in job growth, and the 2015 tax increases are hurting Kansans.
The Kansas Center for Economic Growth is a nonprofit, nonpartisan organization “that conducts research and analysis to promote balanced state policies that help ensure all Kansans prosper.” (realprosperityks.com/about-us)
This year’s increase in the sales tax affects every Kansan, McKay asserts. Although the cigarette sales tax increase doesn’t affect all Kansans, that tax and the increased sales tax encourage those Kansas residents who live near the state line go to neighboring states to shop.
Prior to the major revision of the tax structure in 2012, the state had a balanced array of taxes, often referred to as a “three-legged stool” of sales, property, and income taxes. The plan, in effect for decades, spread the taxation to individuals and businesses statewide so that all residents paid what was generally considered their fair share.
That was changed in 2012 when the legislature, at the urging of the Brownback administration, declared a “march to zero” for the income tax in an effort to inject “a shot of adrenaline” into the Kansas economy. However, the promised job growth has not occurred, the economy has faltered, and the state is struggling to make ends meet because the income has fallen short of predictions. As a result, the legislature has raised sales taxes, removed most deductions from personal income taxes, and cut budgets of state agencies in an effort to balance the budget.
In an October 15 post on the Kansas Budget Blog, Duane Goossen, Senior Fellow at the Kansas Center for Economic Growth and former Kansas Budget Director, notes that Kansans “who draw their income from selling things, renting houses, farming, or some other type of business venture” do not pay state income taxes. Goossen declares, “For the last 3 years, income tax policy in Kansas has roughly divided the citizenry into the paycheck people who pay and others who don’t. It’s fundamentally unfair.”
Goossen points out inequities like the following: A lawyer who owns the law practice does not pay state income tax, but the staff do. A farmer does not pay income tax, but a factory worker does. A doctor working for a hospital or medical agency pays income tax, but a self-employed doctor does not. A landlord does not pay income tax, but the renters do. A food truck owner/vender does not pay income tax, but a food service worker does.
More than 330,000 Kansans have taken advantage of this tax advantage — far more than originally forecast, and those of us who receive paychecks for our work continue to pay. However, the tax structure is not only unfair, it doesn’t bring in enough money to pay for state services. The solution thus far has been to (1) raise sales taxes, (2) cut state agency budgets, (3) transfer money within the state (for example, raiding the transportation budget to make up for the shortfall), and (4) borrow money to cover short term cash flow shortages.
It’s clear that the current tax structure is unfair, but that’s not the only problem. The state is now in a perpetual fiscal crunch. McKay pointed out that during the three years since the 2012 tax restructuring, Kansas raised taxes $777 million in 2013 and $430 million in 2015 — sales taxes paid by Kansas families and businesses. Also, and less apparent, is the shift of tax burden from the state to local cities and counties. Between 2012 and 2013, 67 of 105 Kansas counties raised property taxes to meet basic needs.
These tax increases haven’t eased the financial crunch. Now in FY 2016, the state is still encountering less income than expected–$32 million in September alone. The budget is painfully tight and will not allow for any crisis — an unusually severe winter or perhaps a ruling from the Kansas Supreme Court to pony up several hundred million dollars to meet the state’s constitutional obligation to fund schools equitably and sufficiently.
Meanwhile, the money transferred from the highway fund is likely to result in delayed or ignored road and bridge repairs. Since businesses need good roads to transport products and workers need good road to get to work, the longer-term prospect for the Kansas economy looks more like a shot of whiskey that causes a stupor than “a shot of adrenaline.”
Read more from the Emporia Gazette here.