According to the personal finance website MoneyWise ranking, Kansas ranks as the 3rd worst state for taxing retirees, with property tax, sales tax, and income tax on private retirement income cited as being unattractive. Only Connecticut and Nebraska performed worse than Kansas.
According to MoneyWise, Kansas does not tax social security income for those with less than $75,000 adjusted gross income; in-state pension income for state and local government retirees is mostly exempt from state income tax but private-sector retirees are fully taxes. By comparison, the American Association of Retired Persons (AARP) says twelve states don’t tax retirement income; nine of them don’t have a state income tax at all, and the other three – Illinois, Pennsylvania, and Mississippi – exempt retirement income from taxation. Alabama exempts pensions from taxation.
MoneyWise also MoneyWise notes that Kansas has the 8th highest combined state & average local sales tax rate, at 8.68%. The sunflower state’s average residential property tax rate, as calculated by the Tax Foundation’s definition of total real estate taxes paid per total home value, is the 15th-highest in the nation at 1.33%.
Given the relatively high cost of retiring in Kansas, it’s not surprising that Kansas is among the ten worst states for losing population due to domestic migration – people voting with their feet to move to another state.
Kansas had a net loss of 12,357 residents in 2019; that represented 4.24% of the population and ranked Kansas #41 for percentage loss. Eight of the nine states that had a larger percentage loss have high tax rates; only Alaska, ranked #50, is not considered a high tax state.
It should also be noted that 2019 wasn’t a fluke. As reflected by Census data published in our 2020 Green Book, Kansas is ranked #40 for population loss between 2000 and 2019, having lost almost 180,000 residents over the period, or about 6% of the 2019 population.
This latest bad ranking is but another sign that legislators need to pass reforms to reduce taxes and improve economic competitiveness. The Truth in Taxation property tax transparency legislation would help reduce the rate of growth in property taxes, just as it has done in Utah over the last three decades. Utah has one of the lowest effective property tax rates in the nation, which declined 7.5% between 2000 and 2018 – compared to a 22% increase in Kansas.
Legislators should also consider reducing the state sales tax rate (starting with the sales tax on food) and exempting private-sector pensions and 401(k) withdrawals to put private citizens on par with government retirees. Allowing Kansans to fully benefit from the 2017 federal income tax reforms is another big opportunity, including allowing those who take the large federal standard deduction to be able to itemize deductions for state income tax purposes.
All it takes is the courage to reduce wasteful spending.
Every state provides the same basket of services, but some states do so as much lower costs and that’s what allows them to have lower taxes. In 2018, the states with an income tax spent 55% more per resident than the states that don’t tax income; Kansas spent 40% more per resident than those without an income tax. Retirees, many of whom are living on tight, fixed incomes, will be watching to see if legislators will give them much-needed relief come January by forcing state agencies and school districts to make better use of existing resources.