A couple weeks ago Governor Laura Kelly made good on her commitment to initiate a comprehensive review of the Kansas tax structure by establishing a Council on Tax Reform, co-chaired by two former state senators, Republican Steve Morris of Hugoton and Democrat Janis Lee of Kensington.
Kelly called on the Tax Council to consider reforms that advance “adequacy, equity, and stability” in taxes and “return to the ‘three-legged stool’…a sensible balance of income, sales, and property tax revenue.” The council met for the first time earlier this week and is scheduled to deliver an interim report to the 2020 legislative session and a final report to the 2021 legislative session.
Kelly’s action follows up on her veto of multi-million dollar tax cuts favoring big business interests during the recent legislative session and successfully blocking an attempt to override her veto. She immediately drew flak from tax-cutters who claimed that the council would become a vehicle for tax increases.
So, what is the best path forward on tax policy?
As its first order of business, the council should affirm the wisdom of the “three-legged stool” of Kansas tax policy, as Kelly prescribed. Balance and diversity in taxes assure lower tax rates overall, reduce competition with other states, and promote fairness based on income.
Actions taken by lawmakers from the 1970s, 1980s, and 1990s achieved near-perfect balance in state tax structure by the turn of the century. However, the reckless tax experiment threw tax policy out of balance beginning in 2013. Lawmakers moved to rectify the resulting financial mess by abandoning the experiment in 2017, but restoring that balance should guide recommendations of the Tax Council.
The council should adopt “revenue neutrality” as its second order of business. In other words, current revenues and realistic projections of current revenues should establish an overall cap on recommended revenue adjustments. Revenue neutrality will never mollify the tax-cutting crowd but should help the council and Kelly establish credibility with the public.
The council should embrace as its third principle the long-standing benchmark for tax reform espoused by the conservative Tax Foundation, that is, “broaden the tax base and cut tax rates,” which according to the Foundation, simplifies the tax code, removes unfair tax preferences, and creates economic growth.
Easier said, than done, of course.
However, members of the Tax Council should have as required reading the “Tax Expenditure Report,” prepared by the Kansas Department of Revenue. This 30-page report lists nearly $10 billion in various deductions, credits, and exemptions that narrow Kansas tax bases, primarily sales and income tax bases. Many of these make economic sense, but others have outlived their usefulness. Separating the wheat from the chaff among these provisions will require difficult work as each has a political constituency but could open ways forward on tax policy.
Finally, the Tax Council should tell the real “windfall” story and bury the issue for Kelly. Many businesses were gifted their first windfall with total exemptions from state income taxes during the discredited tax experiment, 2013 through 2017, and then their second windfall through trillion-dollar tax cuts at the national level in 2017.
No such businesses should be awarded a third $100 million windfall as the Kansas State Chamber and its dark money allies now shamelessly propose. Their advocacy of more corporate welfare serves neither tax fairness nor economic growth.
H. Edward Flentje is emeritus professor at Wichita State University and served with former Kansas Governors Bennett and Hayden.