Much of the grumbling that comes every tax season comes not only from paying the taxes but also from the complexity of how to file them. Services, and the costs, ranging from TurboTax to Certified Public Accountants (CPAs) represent an additional cost to people to properly file their taxes. A simple tax reform that lowers the burden of government is to reduce the complexity of Kansas taxes.
In general, taxes should keep a few fundamental principles in order to remain neutral and effective. Some of those include:
• Simplicity – Make taxes easy to understand for taxpayers and easy to manage for government officials.
• Transparency – The conditions of taxes should be public knowledge, and changes to those conditions such as tax increases should be publicized to allow for community input.
• Economic Neutrality – Governments should minimize the effect of taxation on consumers’ and businesses’ spending decisions. This includes keeping taxes low and keeping as much money in taxpayers’ pockets and avoiding double taxation when possible.
• Equity and Fairness – A broad-based tax system with few loopholes allow for fair taxation between different groups of people. The tax system should not exist to benefit the rich through tricks while simultaneously not trying to completely shift wealth in a society.
• Complementary – Federal, state, and local tax codes need to be coordinated together to avoid things such as double taxation and other high bills for taxpayers.
• Competitiveness – Low tax burdens draw domestic migration and spur business creation. States are constantly competing with one another through their tax systems for economic growth. A simple and fair tax system creates a healthy business environment.
• Reliability – Tax systems and the government spending it supports need to work together to avoid budget deficits, program cuts, and unexpected budget changes.
Many of these above principles should guide legislators as they implement simple tax reform. For instance, there’s the government’s decision to expand standard or itemized deductions as a form of tax relief. Standard deductions are simpler to file with compared to itemized deductions – this plays out in numbers with about 30% of filers doing itemized deductions. Because of this, focusing tax cuts on increased standard deductions instead of itemized deductions provides relief in the form of a greater return and easier filing.
By and large, one of the greatest tools for simplifying taxes is favoring universal deductions and changes over targeted, minute tweaks that only affect certain filers. For instance, instead of creating a web of interacting, complex deductions to target numerous sections of the economy, these policies could coalesce into one simple rate reduction that would be more equitable.
Kansas could use tax reform to become a more competitive state. Large business subsidies contribute to Kansas’ highest effective tax rates on mature businesses. These subsidies haven’t corrected Kansas having some of the worst private job creation in the country. Property tax reform could relieve rural businesses and households of some of the highest property tax rates in the country. Sometimes thinking simply and responsibly can yield the best results.
As April 15th nears and the legislative session aims towards the homestretch, everyone should be thinking about how to lower taxes and make the process by which people pay them simpler. With $3 billion in surplus tax dollars and continually high monthly tax revenues, the time is now to also lower taxes as well as make them simpler. Eliminating the retirement tax, food sales tax, or reducing rates are all possible ideas, but need to be done in a balanced matter (i.e., having the guts to reign-in spending) to avoid a budget deficit in the future.