In 2012, the Kansas Legislature eliminated Kansas individual income taxes on business income earned by pass-through entities such as sole proprietorships, partnerships, LLCs, and S-corps. The rationale was that the businesses would use the money to create more jobs and stimulate the economy. It did create jobs for attorneys and accountants, as the 191,000 small businesses it was to help soon proliferated into 330,000 exemptions as businesses rushed to restructure so as to take advantage of the tax break.
The tax cuts did not stimulate the economy as hoped as many companies did not use the money from the pass-through tax cuts to create jobs. The tax cuts did cause a hole in the Kansas budget which grew by about $70 million each month as time went by, eventually reaching $7.1 billion. Rather than rescind the tax cuts, the legislature borrowed against KDOT funds, which cost the state about 80,000 high-paying construction jobs. It also made cuts to programs which actually create jobs, such as in public service, education, and healthcare.
In 2015, the legislature tried to fill the budget hole by passing the largest tax increase in the state’s history. The increases fell mostly on low-income workers and their families, demanding more from those least able to shoulder a higher share of the cost of funding schools, roads, and hospitals. The 2015 tax increase raised cigarette taxes and sales taxes, increased fees for many government services, and eliminated some tax deductions for property tax and mortgage interest payments. Governor Brownback’s budget director made the case for sales tax hikes by warning that refusal to do so would force another round of stiff cuts to schools funding, Medicaid reimbursements, and criminal justice. Kansas sales taxes are now the 8th highest in the nation and low income workers must pay a larger share of their income to buy necessities and food.
Together, the 2012 tax cuts and 2015 tax increases drove tax rates up for the poorest 20 percent of Kansans, slightly reduced the tax liabilities for middle-class earners, and gave about $20,000 a year back to the richest taxpayers. Does that sound equitable?
Finally, in August of 2017, the Kansas Legislature overrode a veto by Gov. Sam Brownback and did away with the LLC loophole. The Legislature also increased Kansas income taxes to form a more equitable tax structure and put the state on a firmer financial basis. However, no provisions were made to repay KDOT or the KPERS funds.
On a positive note, the 2019 budget had a small surplus though it did not pay back most of the money borrowed in the past. This summer, the Governor and the leaders of the House and Senate plan to meet and examine the entire tax structure. The Governor has now appointed bipartisan leadership for the panel,