Concerns that the flat tax in Senate Bill 169 would create budget deficits should be dismissed based on new budget data from the Kansas Legislative Research Department (KLRD). The long-term budget projection shows the state would have a $4.5 billion surplus after four full years of tax relief in SB 169, had Governor Laura Kelly’s veto been overturned.
KLRD prepared the forecast at the request of Senate Tax Chair Caryn Tyson and includes increased costs each year for spending increases on school funding and human services needs. The forecast also assumes the Legislature will not subsidize local government with built-in transfers, as has been the case since 2004.
This year, a flat tax in the form of SB 169 failed just short of overcoming Governor Laura Kelly’s veto – largely due to legislators trying to spite one another at the last minute versus actual criticism. Throughout the legislative session, the same arguments were used over and over against the flat tax, one of the favorites of Laura Kelly being that it would bankrupt the state and take us “Back to Brownback.” However, a recent budget profile released by the Kansas Legislative Research Department dispels this rumor.
Governor Kelly vetoed SB 169 earlier this year, partly because she (falsely) said tax relief would destabilize the budget. KLRD shows Kansas would end FY 2028 with $2.7 billion in its ending balance and $1.8 billion in the Budget Stabilization Fund, totaling $4.5 billion in reserves.
Flat tax and other components of SB 169
The Legislature narrowly missed overriding Kelly’s veto due to some petty political maneuvering by three Republican senators, but Speaker of the House Dan Hawkins says a flat tax proposal will be back in 2024.
Currently, Kansas has three tax brackets: for married files, it’s 3.1% for income below $30,000, the next $30,000 income between $30,000 and $60,000 is taxed at 5.25%, and income about $60,000 is taxed at 5.7%. For single filers, it’s the same tax rates except each bracket starts at half of that for married filers. For FY 2024, SB 169 would have established a single tax rate of 5.15% starting at incomes above $12,300 for married filers and $6,150 for single filers.
The bill also would have accelerated the ongoing phase-out of the state’s food sales tax, phased out the cliff of a taxation “cliff” affecting Social Security income, and would have added a cost-of-living adjustment to the standard deduction.
Flat tax reduces the burden on all taxpayers
In particular, incomes below $12,300 for married filers and $6,150 for single filers would have been completely exempt from the flat tax rate. This is crucial because tax cuts for lower income earners have a stronger effect on the willingness to work. Nationwide in 2021, the lowest 20% of earners received a greater share of their income in tax expenditures than all other quintiles.
Another objection that opponents will have is that tax cuts only benefit the rich – and looking at the numbers, the rich do receive a larger dollar amount in savings than other groups. But this is because they have a large percentage share of Kansas’s bracket income tax system than their ownership of adjusted gross income. According to the tax year 2021 returns processed by the Kansas Department of Revenue, filers with adjusted gross incomes above $100,000 possess 60.6% of Kansas’s total adjusted gross income, but pay 69.9% of the state’s individua income tax.
Since 2012, 24 other states have managed to enact tax reform without the same problems Kansas had under Brownback. The $4.5 billion surplus may appear good, but it represents a glut of taxpayer dollars that’s sitting in the coffers of Topeka. Amidst high prices on food and a sluggish economy for many, Kansans deserve relief next year.
