Kansas remains steady at 25th overall in the 2025 State Tax Competitiveness Index, a continuation of its position from 2024, according to the Tax Foundation. While having incremental improvements in specific taxes, Kansas must address its systemic issues through spending restraint and eliminating income taxes to fully capitalize on its economic potential.
Understanding the State Tax Competitiveness Index
The State Tax Competitiveness Index, previously called the State Business Tax Climate Index, evaluates how effectively states design their tax systems, focusing on corporate, individual income, sales, property, and unemployment insurance taxes. States that rank highest typically feature lower, flatter rates and neutral systems that minimize economic distortions, compliance burdens, and hidden costs.
Kansas’ Rankings: 2025 vs. 2024
While Kansas’s overall ranking remains unchanged at 25th, its rankings in various tax categories show slight improvement. Below is a summary of the latest figures alongside comparisons to the revised 2024 rankings:
Key Takeaways
- Corporate Taxes: Improved by one spot due to favorable provisions such as federal bonus depreciation alignment but remains constrained by burdensome rules like the throwback rule.
- Individual Income Taxes: Stagnant at 27th, reflecting Kansas’ reliance on a graduated-rate system and lack of indexing for inflation even after recent reforms.
- Sales Taxes: Despite moving up one spot, the state’s combined sales tax rate remains one of the highest in the nation.
- Property Taxes: A modest improvement, but the overall burden still drags down Kansas’ competitiveness.
- Unemployment Insurance Taxes: Kansas dropped one spot to 4th but still performs well compared to other states.
Spending Restraint: The Essential Missing Piece
Without controlling spending, any gains in tax competitiveness will be unsustainable. Kansas should adopt fiscal policies that cap government spending growth to a maximum rate of population growth plus inflation, as done in KPI’s Responsible Kansas Budget. This approach ensures that tax reductions do not create fiscal deficits, providing a foundation for long-term prosperity.
Kansas has failed to prioritize spending restraint before. During the tax reform experiment of the last decade, high spending levels undermined tax relief efforts, resulting in political backlash and eventual tax hikes. To avoid repeating this mistake, Kansas must institutionalize spending controls.
Eliminating Income Taxes: A Competitive Edge
Kansas lags behind states like Texas, Florida, and Tennessee, which thrive without individual income taxes. Phasing out income taxes would attract businesses and residents, boosting the state’s economy. Kansas can ensure fiscal sustainability while fostering growth by coupling income tax elimination with spending restraint and using surplus revenue for tax relief.
Recommendations for Kansas Policymakers
- Adopt Spending Caps: Limit any state and local government spending growth to a maximum rate of population growth plus inflation.
- Simplify Tax Structures: Transition to flat-rate individual and corporate income taxes to reduce compliance costs and incentivize economic activity.
- Eliminate the Throwback Rule: Removing this rule will alleviate the tax burden on Kansas businesses operating in multiple states.
- Phase Out Income Taxes: Gradually reduce and eliminate individual income taxes using surplus revenues and strategic budget adjustments.
The Path Forward
Kansas has the opportunity to become a leader in tax competitiveness, but achieving this requires more than incremental improvements. Kansas can establish itself as an economic powerhouse by implementing spending restraint and committing to bold tax reforms, including eliminating income taxes. The time for action is now, as other states aggressively pursue policies that attract businesses and residents. Kansas must rise to the challenge or risk being left behind.
