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Governor Kelly vetoes tax relief amidst budget surplus

Kelly's budget

This morning, Governor Kelly vetoed SB 169, a tax package that includes provisions to flatten the income tax and eliminate the food sales tax. The legislature will have the chance to override it with a two-thirds majority vote in each chamber. Instead, Kelly proposed a rebate of $450 per person over the summer totaling $800 million. In true Kelly fashion, she compared tax reform that isn’t hers to going “Back to Brownback” whereas her own massive plans are perfectly fine. The state’s recent revenue estimate update shows that Kansas has a budget surplus and can well afford long-term tax relief for all residents, not just a one-time pat on the back via a rebate that is unlikely to stimulate growth.

Last week, the Consensus Estimating Group for Kansas released its April 2023 memo. The actual tax revenues collected, as well as predictions for the future, are up across the board. The total collected taxes for 2022 was 9.5% higher than previous expectations that are about $846.6 million more than the previous estimate! The projections for the future went up as well. The estimates for FY 2023 (which ends this June 30th) increased by 3.9%, or $380.4 million dollars. FY 2024’s estimates were up by 1.3% too.

However, the stunning number is that the budget profile predicts a massive $3 billion ending surplus in FY 2024 even WITH the tax relief from SB 169. Even more, this doesn’t include an additional $1.6 billion in the state’s Budget Stabilization Fund. The idea that this tax relief is going to “break the budget” is empirically false.

Kelly’s rebate idea is a temporary gambit that is dwarfed by the long-term opportunities of SB 169. The $800 million rebate is gone once it’s spent, it’s a one-time boost to taxpayers. The flat tax and other structural changes in SB 169 would have a much more significant economic effect in the future. An income tax affects people’s willingness to work: the more a worker is taxed, the less they earn and can spend, and thus can be dissuaded from working more. Studies of flat taxes in Europe have found that their implementation increases the number of people working and the number of hours they work, with the most significant effects coming with tax cuts for people with lower incomes.

The flat tax has the potential to attract new businesses and encourage residents to stay in Kansas for the long-term compared to a one-time check. The large surplus makes that possible but has to be done in tandem with right-sizing government and responsibly managing spending and taxation. Governor Kelly’s aversion to long-term tax reform is the same mindset that has mired Kansas behind other states in economic growth.