••• Tax & Spending •••

Five reasons for tax reform in 2024

As the state’s budget surplus ticks up into the billions, Kansans are in need of tax reform to have more money in their wallet and foster more opportunities in their communities. Here are five reasons why a flat tax belongs as Kansas’s “New Years Resolution.”

1. Inflation has burned a hole in families’ wallets

According to the Bureau of Labor Statistics’ Consumer Price Index for Urban Consumers, across all products, inflation from December 2020 to December 2023 has been a whopping 18.1%. That means if a family spent $1,000 in 2020 on gifts for Hanukah, Diwali, Christmas, or any other holiday they celebrate, to buy those same gifts in 2023 would cost an additional $180 dollars! Food has suffered from consistent high price hikes, with inflation from December 2020 to December 2023 being 21.0%. A $150 Christmas meal in 2020 now is $181.50, if not more depending on what the family is eating!

Beyond the holiday season, families are facing high prices everywhere from the grocery store to the gas pumps. Tax relief is a tangible way to keep more money in peoples’ wallets so they can afford the growing price tags around them.

2. Kansas is sitting on a multibillion-dollar surplus and can afford tax relief

According to a release by the Kansas Legislative Research Department at the end of November, Kansas would have had a $4.5 billion surplus after four full years of SB 169, last year’s flat tax bill that was vetoed by Governor Kelly and failed to get the votes to overturn the veto. That includes $2.6 billion in the ending balance and $1.9 billion in the budget stabilization fund.

On one hand, yes, it’s good that Kansas finally got around to shoring up its rainy day fund. The state isn’t unique in this sense – total revenue collections in states across the country grew by a whopping 16.6% in 2021 and then another 16.3% in 2022. Governor Kelly is quick to attribute this to her own policies, but this nationwide phenomenon is more due to tax collections remaining high despite concerns that the COVID-19 pandemic would cause a decline—keep in mind that states also received multiple “bailouts” during both Trump and Biden administration that were not necessary.

Topeka is sitting with billions of dollars worth of taxpayer cash that could be used by the people who paid them. A few hundred dollars goes a long way to buying food, paying rent, investing in education,  and otherwise providing for the family.

3. Kansas hasn’t had significant tax relief in recent years

Last year was an example of how tax relief has been slow despite the state’s surpluses. As mentioned previously, SB 169 was vetoed then the Senate failed to override it after legislators switched their votes. SB 33, which would have exempted Social Security benefits from the state income tax and indexed the standard deduction to inflation over time, passed the Senate but didn’t make it out of committee in the House. The one exception recently is the phase-out of the food sales tax by 2025.

Meanwhile, the bills that did pass last year are niche tax credits for narrow industries: communication services and telecom sales tax exemptions, a sales tax exemption for “area agencies on aging and purchases made by Kansas suicide prevention HQ,” and more STAR Bonds for historic theaters and amusement parks.

The skepticism towards tax relief is understandable: Governor Brownback’s attempts at reform in 2012 failed when the final bill increasingly grew in size and legislators were unwilling to reduce spending in order to balance the budget.  The end result was the largest tax hike in state history in 2017. Since 2012, 24 other states have accomplished income tax reform while managing their budgets, and have accomplished growth as a result. Kansas’s story isn’t the norm, but rather an example of how an unwillingness to reduce the size of government makes it impossible to reduce its tax burden.

4. Other states have enacted similar tax reform and benefited…

Since 1998, Idaho has had the third-highest growth in wages and fifth-highest growth in GDP nationwide – largely due to a commitment to low taxes that has kept residents in the state while attracting others from places like California. In 2013, 90% of Idaho businesses were exempt from paying the personal property tax, shortly after large tax cuts in 2012. In 2022, Idaho passed a flat tax rate on the corporate and individual income tax at 5.8% during a special session because of high collections.

In 2022, Iowa enacted a flat tax bill to drop its nine brackets with a top rate of 8.53% down to one final rate of 3.9%. When Iowa’s flat tax is in full effect by 2026, 98% of taxpayers with $10,000 or more of taxable income will have a lower tax liability at 3.9%. Iowa’s median household earning $60,253 would have its income tax burden decline by 26% from $2,765 to $2,052. 57% percent of Iowans supported their flat tax plan compared to the 24% who didn’t.

North Carolina’s growth largely stems from a decade of tax reform, starting with reductions of the corporate income tax rate with a phase-out planned by 2029 and then a flattening of the income tax to 5.8% in 2014 and later 4.99%. These bipartisan reforms have resulted in an influx of venture capital investment, job growth, and prosperity. A low cost of living and affordable housing have helped in the move, but free-market reforms like changing exclusionary zoning laws and reducing prohibitive regulation are key to keeping homes built at an affordable selling price. North Carolina is the sixth-highest destination for domestic migration for this reason.

5.  …while Kansas has stagnated and failed to enact significant change

According to the BEA since 1998, Kansas has ranked 44th for private-sector job growth. Wages have also been low during this time, coming in at 39th. Since 2000, Kansas has lost a net of 192,918 people from domestic migration. States with no income tax had a 7,449,110 increase in their populations from domestic migration while those who do tax income lost 7,407,795 residents.

All the while, Kansas’s spending and taxation remain high. Kansas has the third-highest number of state and local governments per resident in the country and the third-highest number of general-purpose governments as well. Compared to states without an income tax, Kansas spends $2,096 more per resident to provide the same basket of services that those states do as well.