A plan by the Kansas Chamber to implement a flat income tax would come with a price tag far bigger than the tax cuts of former Gov. Sam Brownback that were eventually repealed amid massive budget shortfalls.
The Kansas Chamber's plan would generally implement a 5% flat tax on both personal and business income. Fiscal estimates released Monday on HB 2061 put the cost to state revenues at about $1.5 billion a year.
"It's a little higher than anticipated," said Chamber lobbyist Eric Stafford, adding that the fiscal note does not change their stance on moving to a flat tax in some form.
Stafford said the high cost of the tax cut is largely due to a provision intended to keep a flat tax from raising taxes on poor Kansans.
"We kind of anticipated it being a high fiscal note, knowing that that exclusion was in there," Stafford said. "But we'll work with leadership and come up with something. I think we can be fiscally responsible that's still good for the taxpayers."
While additional bills later amended the Brownback tax plan, the original 2012 law in HB 2117 was projected to reduce revenues by $803 million in fiscal year 2014 and $934 million by fiscal year 2018. Lawmakers undid the experiment in 2017 over Brownback's veto after years of budget cuts.
How to cut taxes - and by how much - is set to be a major point of debate among legislators in Topeka this session. A Special Committee on Taxation studied several proposals during the fall, but a flat tax was not among them.
The state's latest revenue forecasts from November project a $2.3 billion surplus for the current fiscal year, which ends June 30, and $3.2 billion surplus for the next fiscal year. Tax collections for the two months since those forecasts have been $104 million above estimates, suggesting this year's budget surplus is more like $2.4 billion.
Kansas also has about $1 billion in a rainy day fund.
More:These tax cuts will be prioritized this legislative session as Kansas enjoys $2.3B surplus
Gov. Laura Kelly warns against 'irresponsible' tax cuts
Gov. Laura Kelly has proposed her own tax cut plans while warning against "irresponsible" tax cuts without elaborating on what those would be.
"The legislative session started a couple of weeks ago, and already some have proposed using our surplus for tax plans that would threaten all that we've achieved for working families," Kelly said last week. "We've experienced irresponsible tax experiments before, we know where it leads."
When asked by reporters, Kelly did not say whether she considers the flat tax proposal to be irresponsible.
"I actually just this morning asked to have the numbers run on those proposals so that I can determine if it will be irresponsible. "I think the concern that people have with something like that flat tax is whether it will generate enough revenue over time, and that's what we have to look at. I know some other states who have implemented flat taxes have seen a reduction in revenue, so I think we just have to crunch the numbers to see."
But when asked if that response means she might be open to a flat tax as long as it didn't cause too big of a hit to state revenues, Kelly replied, "I didn't say that."
She acknowledged concerns that a flat tax could be more beneficial to wealthier taxpayers.
"Those are things we have to look at," Kelly said. "There are a whole host of ways to design a flat tax, and the devil will be in the details. So we'll see, you know, is there an exemption for a certain amount of income? Are the loopholes tightly closed so that it doesn't advantage folks that it probably doesn't need to?"
What's in the Kansas Chamber's flat tax plan?
The Chamber's tax plan, which is HB 2061 in the House and SB 61 in the Senate, would overhaul income tax rates.
It's headlined by a 5% flat rate on all personal income above $15,000 for individuals and $30,000 for married couples filing jointly. All income below that amount would have no income tax.
"We knew that'd be pretty pricey," Stafford said of exempting income below $15,000 from state taxes, "but we're just putting it out there because knowing what opponents to a single-rate system have said in the past about raising taxes on the poor."
Without exempting the first $15,000 in income for individuals and $30,000 for couples, a 5% flat tax would amount to a substantial tax increase on the poorest Kansans.
Kansas currently has three tax brackets. The first $15,000 for individuals and $30,000 for couples is taxed at 3.1%. The next $15,000 for individuals and $30,000 for couples is taxed at 5.2%. Any income above $30,000 for individuals and $60,000 for couples is taxed at 5.7%.
The tax plan further cuts income taxes on corporations to a flat 5%. Currently, businesses pay a base 4% income tax plus a surcharge of 3% on income above $50,000.
The proposal also leaves the bank and trust company base 2.25% tax rate unchanged, but lowers the surcharge on income greater than $25,000. For banks, the surcharge goes from 2.125% to 0.88%. For trust companies, it's 2.25% to 0.96%.
The Chamber plan also creates a new section in tax law that would funnel tax revenues in excess of estimates to a fund that reduces personal and corporate income tax rates until they reach 0%.
The Chamber announced its support for a flat tax earlier in January, pointing to a growing number of states adopting flat taxes.
Stafford pointed to a substantial growth in state tax revenues as justification for lowering income tax rates.
"The biggest question to look at is the state brought in 20%-25% more revenue over the last two years," he said at a news conference in early January. "Why hasn't that been part of the discussion initially from the governor's office and from the Legislature to look at lowering rates because we've had such a significant increase in state revenues?
"We're trying to take an approach that is cautious but also puts us in a more competitive position than what we are today," Stafford said.
Kansas GOP supports flatter tax
Kansas GOP leadership in their agenda for the legislative session have called for a "flatter" tax.
"I think a single rate is probably fair," said Rep. Adam Smith, R-Weskan. "It's similar to the sales tax, the more you spend, the more tax you pay. Same thing with income tax, if it's a single rate, the more you make, the more you pay in income tax."
Smith, who is chair of the House Tax Committee, said last week before the fiscal estimates were released that he planned to hold a hearing on the bill.
"There's a lot of good things in there," he said. "It's not going to be the final product. We need to make some adjustments and see where we want to be out on some of those things."
The Chamber's plan does not eliminate any existing income tax exemptions, which Smith said should "absolutely" be on the table.
"When you start carving out certain people, government is picking winners and losers," he said. "The winners love it because they're not paying anything, they're completely exempt. That's not fair to everybody else. Let's let's all pay. I hate to say the overused adage 'let's pay our fair share,' but if everybody's paying a low rate, you don't shrink that tax base so much that the people that are left paying the tax have an extremely high rate."
This article originally appeared on Topeka Capital-Journal: Kansas Chamber flat income tax plan costs more than Brownback tax cuts
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