By a vote of 27 to 13 in the Senate, and 88 to 31 in the House, the Kansas legislature overrode Gov. Sam Brownback’s veto and voted into law reportedly the largest tax increase in state history.
“Too much, too fast,” said Rep. Willie Dove, a Bonner Springs Republican. “Too big….This is not a good deal.”
The tax increase will take full effect starting in tax year 2018. Individual income taxes will be increased across the board at rates of 3.1 percent, 5.25 percent and 5.7 percent. There will be a phased in rate beginning this tax year, 2017. Perhaps more critically for the state’s economic growth, the new legislation will end the LLC exemption for certain business owners.
In the way of background, the 2012 bill cut income tax rates and exempted non-wage business income for LLCs, S corporations and sole proprietorships. The latter provision, even The Star conceded, was “aimed at job creation.”
Job creation was surely needed. In the dozen years leading up to the bill’s passage, the only employment sector in Kansas that experienced net job growth was local government. Fewer Kansans were employed by the private sector in 2012 than in 2001. Surrounding states with lower tax rates were all performing better.
Almost from the day Brownback signed the bill into law, the state media, with the Kansas City Star at the lead, began this bizarre drumbeat. The editorial eagerness to see the plan fail became increasingly relentless, obsessive, fetishistic even. Liberal editorialists across the country picked up on it and positioned Kansas as a poster child for the folly of tax cutting.
Although this mania could not have helped Kansas recruit new business during the four or so years the tax cut was in place, new business creation picked up considerably. Despite relentless sabotage by the state’s media, the exemption worked as planned. New business filings set a record in 2016, and the total number of business enterprises set a record as well.
In the years before Brownback took office in 2011, new business creation in Kansas had essentially flat-lined. After the tax-cut bill passed, the numbers grew dramatically, with new filings increasing every year since 2012. In certain quarters, this news was not welcome. In most quarters, it was not even heard.
This reversal of fortune may weigh heaviest on Missouri Gov. Eric Greitens. Without Gov. Brownback to kick around, the region’s nonpartisan editorialists will need a new Republican target.