May 24, 2024

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Tax Foundation recommends Kansas changes to spur economic growth

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The Kansas Chamber partnered with the Tax Foundation to produce a Kansas tax reform guide to spur economic growth in Kansas.  The DC-based Tax Foundation toured the state for nine months speaking to a variety of Kansas taxpayers including property taxpayers and international businesses. According to Alan Cobb, President and CEO of the Kansas Chamber, Kansas is in dire need of tax reform.

“We must modernize our tax code to allow Kansas to be a more attractive place for businesses to invest and succeed, and all Kansans to flourish.”

The report emphasizes that Tax Foundation recommendations address how revenue should and should not be collected, leaving the decision of how much revenue should be collected to Kansans.  The report acknowledges that lower rates and lower tax burdens “will incentivize investment and spur economic growth” but also cautions that that means spending must be brought in line to allow for lower rates.

Some of the key corporate income recommendations include:

  • Removing international income from the tax base so corporations don’t have to pay Kansas income tax on income earned overseas, which makes Kansas less attractive to international businesses.
  • Locking in full expensing of capital investment.
  • Repealing the throwback rule so Kansas businesses that sell out-of-state aren’t punished.

Individual income tax recommendations include:

  • Indexing income brackets, the standard deduction, and personal exemption to inflation.
  • Eliminating the Social Security cliff. Kansas excludes Social Security from the taxable income of those whose federal adjusted gross income is $75,000 or under, but taxes it in full once a taxpayer earns a single additional dollar.
  • Allowing those who take the federal standard deduction to itemize for state purposes.

For the 2018 tax year, the standard federal deductions were $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly. Now, contrast that to the Kansas standard deductions of $3,000 for single filers. $7,500 for those married filing jointly. $5,500 for a head of household. Deductions serve to reduce taxable income, as a result of the disparity between Kansas and federal deductions, forces Kansans to have artificially high taxable income. This, in turn, can lead to a higher tax bill. Katherine Loughead a policy analyst with Tax Foundation thinks this should change.

“Because Kansas does not allow an independent choice of itemization, the people who are now benefitting more greatly from claiming the standard deduction at the Federal level, still have to claim a relative stingy deduction at the state level,” says Loughead.

The 150-page report also recommends changes to the property tax lid, notably looking to get rid of exemptions, give local government more autonomy, all while giving taxpayers transparency to taxpayers regarding where their taxes are going.

Michael Lucci, Vice President of State Projects at the Tax Foundation gave the example of Utah, which reformed their property tax lid.

“If you look at the results in Utah, property taxes as portion of personal income has been consistently falling since they have enacted the change,” says Lucci.

Governor Laura Kelly recently formed a tax committee to explore changes to Kansas’ tax code. Cobb believes the two plans will contrast more than compare.

“I certainly applaud the Governor’s effort. I think I was a little disappointed that some of the conversations seem to be more about ‘well what are some for the taxes we need for the spending we need,’” said Cobb.

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