••• Tax & Spending •••

What does effective tax relief look like?


Every year, dozens of bills with some form of tax “relief” are debated in the Kansas Statehouse. Yet, most of these bills will barely have an effect on the Kansas economy and benefit only a small subset of taxpayers instead of the vast majority of people. They’re far from the effective tax relief that would propel Kansas’s economy.

For instance, HB 2416 from this year’s session would create a sales tax exemption for non-profits that would primarily go towards services that assist senior living. The fiscal note is dated since the bill carried over from the 2023 session, the bill would have created $337,000 in sales tax relief from the All Funds Budget the year after the bill was effective. For context, Kansas’s actual 2023 All Funds Budget was $24.3 billion dollars, so this exemption would be .001% of the All Funds Spending. The bill also contains $42,000 to the Kansas Suicide Prevention HQ in the form of a sales tax exemption.

On one hand, it’s easy to look at this bill and say “Of course we want to support taking care of senior citizens, and this bill is such a small part of our spending, why not?” But there are a few issues. For one, narrowly defined tax relief for one group means that hundreds of other groups who equally deserve tax relief will have to foot the bill. Unless spending is reduced, tax relief towards senior citizens through their care means that other groups like low-income families, college students, and plenty of others have to foot the bill. Over time, as more bills catered to small groups emerge, the Kansas tax code becomes a convoluted web of exemptions and special conditions based on industry or person instead of one, simple, cohesive code.

Helping seniors is something that the Kansas government should do. That policymaking should not be coming from the tax code though.

Principles of effective tax relief

The Tax Foundation lists four principles for tax codes that make for effective tax relief.

  1. Simplicity. Codes that are easy to comply with and simple to enforce. The more specialized exemptions and conditions into a tax code, the harder it can be for both taxpayers and the government to follow.
  2. Transparency. Tax rates should be readily apparent and available to taxpayers so they know what they have to pay. Changes to the tax code are widely published and have opportunities for open hearings.
  3. Neutrality. The sole reason for a government to tax is to provide for its spending on public services. Using new or existing taxes to affect taxpayers’ and businesses’ decisions creates the narrow carveouts we discussed earlier. For instance, a sales tax exemption for communications companies unfairly benefits that industry at the cost of others.
  4. Stability. Keeping a broad base with taxes means that with economic change, tax revenue is less susceptible to wild change. For instance, relying on narrow consumption taxes on a certain product could create revenue issues if people stopped producing that specific product as much as they did in the past.

A flat tax like HB 2284, which Governor Kelly vetoed earlier this year, encompasses many of these principles. Reducing the complexity of a tax from a bracketed system to a flat tax rate reduces the time and money taxpayers spend to pay it, never mind the heartache of hoping you did it correctly. A flat tax all taxpayers benefits everyone equally: it creates economic activity by reducing the burden of government on the economy everywhere, not one specific sector. Activists against a flat tax were quick to say it would “bankrupt” Kansas, but the Kansas Legislative Research Department reported that Kansas would have had a $4.5 billion even if a flat tax was passed in 2023.

The temptation to pass narrowly defined tax bills in favor of more comprehensive plans is tempting. However, these types of bills fail to propel Kansas’s economy and make it a better place for everyone. Instead, they often—but not always—amount to little more than policy making via the tax code. Policy making should aim to solve problems while tax policy should raise the (limited) revenue necessary in the most economically-efficient way possible.