Kansas Governor Laura Kelly’s Council on Tax Reform recently released their final report and the message is clear: higher taxes to pay for more spending.
Spending has jumped 24% since 2018 under Kelly and is more than $2 billion higher than if adjusted for inflation since 1995. The Tax Council she assembled is continuing this trend by recommending more spending, including:
- No restrictions on state or local government spending.
- Funnel over $50 million to cities and counties on the pretense of property tax relief
- Expand Medicaid
- Double-down on court-ordered K-12 funding that exceeds inflation and student enrollment growth, notwithstanding low student achievement.
Of course, more spending means higher taxes. Considering that the vast majority (88%) of the Tax Council is either government-affiliated or former public officials, it’s not surprising that their recommendation is to keep the government growing with higher taxes.
Higher taxes masquerade as “reform”
The Council recommends eliminating the state sales tax on food. Yet, this proposal is immediately followed in the report by a proposal to tax digital goods and expand the sales tax base. Depending upon what is included in the definition of “digital,” much of the food sales tax savings could be wiped out.
There are recommendations to expand the homestead property tax circuit breaker as well as the homestead exemption, but any savings there could be wiped out by another recommendation – expanding local excise tax authority.
The proposal that is most damaging to the state’s economy is a deeply-buried nod to creating a fourth income tax bracket on people earning more than $50,000 and couples earning more than $100,000. Though that seems like a lot of money, two teachers making $51,000 each would be pushed into this higher bracket.
The Myth of the Three-Legged Stool
The Tax Council justifies higher income taxes by recommending “state and local tax policy that adheres to the Three-Legged Stool concept that balances income, sales, and property taxes.” The justification is “preventing an over-reliance on a single tax source.”
This folksy-sounding concept is purely a myth to justify higher income taxes and being able to target the increase to a certain group of people.
First of all, state and local government budgets are dependent upon two revenue sources, not three. The state gets about 99% of tax revenue from income and excise tax, and local governments are funded by property tax and sales tax.
Next, balancing the three legs would likely come about from higher income taxes because that is the “shortest” leg. According to the Kansas Legislative Research Department, property tax was $5.1 billion in FY 2019, income and privilege tax was $4.3 billion, and sales, use, and excise taxes totaled $4.9 billion.
Finally, the three-legged concept is bad for the government. During the Great Recession, income tax fell 21% between FY 2008 and FY 2010, but sales and use tax were only down 5%. State government is far better off relying more on sales tax than income tax because it is much less volatile.
As detailed in Kansas Policy Institute’s Responsible Kansas Budget, uncontrolled spending leads to budget deficits and tax hikes. Legislators should be cautious about tax cuts unless there are reductions to spending – and likewise, elected officials shouldn’t promise big spending packages while burying the fact that taxes will have to increase as well.