If you are an employee in Kansas, you are paying Kansas income taxes.
If you own a business, starting this year you are not paying Kansas income taxes on your business income. This includes manufacturers, retailers, doc-tors, lawyers, farmers and others whose business income is taxed to them as individuals.
Our governor and Legislature have “bet the deed to the farm” that eliminating income taxes on business income will produce economic growth and jobs, which in turn will provide the necessary tax revenue to pay for K-12 schools, uni-versities, community col-leges, technical schools, roads, public health ser-vices, courts, state police, prisons and other essential services.
This theory has been sold as a benefit to “small business.” What isn’t said is that many substantial businesses with assets and sales in the tens of millions of dollars have owners who are taxed as individuals on their business income — and they will not be taxed in Kansas. Some “small business!” This approach is extreme, to say the least.
With attention focused on lower income taxes in general, many Kansans do not under-stand that they will continue to pay income taxes while losing tax deductions; these lost deductions will increase their income taxes. While it is true that individual income tax rates are being reduced for everyone, there is a big difference between paying income taxes and not paying income taxes. And the reduction is spread out over the coming years. How do we know that the rates will not be increased? Witness the sales tax increase the governor and Legislature approved this year.
While in theory there is an argument that eliminating busi-ness income taxes may stimulate the economy, a more balanced approach would seem fairer to all taxpayers. The governor and Legislature should have adjust-ed the mix of income, sales and property taxes in order to fund the state’s obligations. Instead, they chose the extreme path of eliminating income taxes on business income while relying on sales and property taxes and continuing to tax paychecks.
President Eisenhower made it clear in a July 13, 1954, letter to a friend that he rejected extreme positions, whether in political or economic fields, instead choosing to solve problems in a “middle way” representing “… a practical working basis between extremists…” Count me in as supporting the “middle way.”
How is the state’s bet looking? Not too good. A recent forecast by Wichita State University’s School of Business notes that unemployment in Kansas has grown, not declined, in the last year, while jobs are growing at below the national average. That forecast is mirrored by an 18-percent drop in income tax receipts in the three months ended Sept. 30 compared to the same period last year, according to Kansas Legislative Research.
To hedge the bet and reduce the $2.4 billion accumulated deficit in 2018 projected by Legislative Research, the governor and Legislature this year raised the sales tax rate and eliminated various deductions, in effect raising citizens’ taxes. So revenue is being raised by tax increases and not by the hoped for increased economic activity.
What happened? Will the governor and Legislature raise taxes again?
These are not the results we hoped for from the governor’s and Legislature’s bet. If these trends con-tinue, there is bad news aplenty coming. The gov-ernor and Legislature will deserve the credit if their bet wins, but will they accept the blame if their bet loses?
What’s more, accepting responsibility for the lost bet will be the least of it, because essential state services like our public schools, roads, health and other services will have been damaged by the lack of funding in the intervening years.
We Kansans have always prided ourselves on our fine institutions and services that distinguish Kansas from neigh-boring states. Our governor and Legislature should hear from Kansans that they want no part of this bet. Too much is at stake.