The Kansas Tax Issue
There has been a lot coming out about the flat tax that Kansas Republicans have proposed, and I wanted to wait a bit to see where this would go before getting too deep and then everything seemed to happen all of a sudden. A lot of things have been said from both sides of the aisle and I want to take the time to break everything down. However, before we do that, we need to understand what taxation is.
If you spend time in Libertarian circles and some conservative circles, you’ve probably heard the phrase, “Taxation is theft.” While I don’t necessarily disagree with that sentiment, I do think it does water down the more complex reality of taxation.
When we talk about taxation we are talking about how much of a right people have to their income according to the government. So, if someone supports raising taxes, they are supporting the restriction of people’s access to their own money through the use of government intervention. Currently, the Kansas government is trying to decide how much of a right Kansans have to their own money, and how to move forward with restricting Kansan’s natural rights.
Currently, the debate is with Kansas Republican’s flat tax proposal versus Gov. Laura Kelly’s tax proposal. Under the flat tax proposal, all Kansans would have an equal right to their money as each Kansan would have the same income tax rate. Many opponents, however, believe a progressive tax rate, like we currently have, is better. Under a progressive tax rate, the more money you make, the less of a right you have to all of your money.
Opponents of the flat tax have echoed a number of reasons as to why it would be a bad idea, including:
The bill is a “tax break for the wealthy;”
It will cost the state an estimated $1.6 billion;
It’s a tax plan against the working middle class; and
It is the same thing as the Brownback tax experiment.
I think it is important to really look at these claims one at a time to fully understand how accurate they are and understand if the criticism is deserved or if it is simply fearmongering. I also want to look at Gov. Kelly’s proposal as well, and compare it to the Republican flat tax proposal. Things have happened rapidly with this flat tax bill, it has already been passed by both chambers and vetoed by Gov. Kelly. So, now it is a matter of figuring out if the House and Senate should override the veto and if that would be a good thing or not for Kansans.
Claim #1: This is a tax break for the wealthy
Under our current progressive tax rate, Kansans who make $30,000 or more have an income tax rate of 5.7 percent. The tax rate proposed for individuals making this much would decrease to 5.25 percent. According to the Institute on Taxation and Economic Policy (ITEP), the top 1 percent of Kansas earners would have an estimated tax cut of $6,608. The next top 4 percent would see an estimated tax cut of $1,558. Even on the calculator created by Americans for Prosperity (AFP) shows that someone with an income of $150,000 would see savings of $812.25 (it should be noted that they’re proposal is for a tax rate of 5.15 percent).
Democrats have also said that, according to ITEP, Charles Koch, an American billionaire who has been the co-owner, chair, and CEO of Koch Industries since 1967, would get a tax break of $875,000. Interestingly, Koch founded AFP with his late brother David. So, yes, this could technically be considered a “tax break for the wealthy,” however, there are a few important details that need to be noted.
ITEP guesstimated that Koch’s “state taxable income is likely in the vicinity of $194 million today.” When you actually look at that tax break, it is a savings of less than 0.5 percent of his state taxable income.
On top of this, the median household income for all age groups across Kansas is above $30,000, meaning the vast majority of Kansans would go from paying the 5.7 percent state taxable income to the 5.25 percent state taxable income. So, even if you are not wealthy, you would likely see the tax rate you pay go down.
Claim #2: It will cost the state an estimated $1.6 billion
According to the Kansas Legislative Research Department (KLRD), this is true. This would be the price tag over the next three years.
Claim #3: It’s a tax plan against the working middle class
There’s been especially a lot of conflict on this claim.
“This plan provides nearly everything the governor asked for and is purposely designed to primarily help those who are on the lower rungs of the economic ladder, some of whom will pay $0 in state taxes if this becomes law,” Speaker Dan Hawkins said following the bill signing. “It guards against inflation and provides substantial property tax relief, which Kansans have been clamoring for. By simplifying the tax code, it will catapult Kansas into a category of states that have tax structures proven to spur economic growth. If the governor is serious about providing tax relief, she’ll sign this bill.”
Opponents have said differently.
“There is a group of Kansans that, if this goes into effect, their tax rate went from 3.1 percent to 5.25 percent,” Senate minority leader Dinah Sykes said in an interview on WIBW. “That is a significant increase for some of our lowest-earning income Kansans. So that is where the issue is: How do we make sure that it’s tax policy that is going to help our low and middle-class Kansans? The bill that passed the Senate, 20 percent of Kansas’ high earners are going to get 70 percent of that relief.”
On top of this there is another claim that married Kansans will not get much tax relief at all.
“According to the Kansas Legislative Research Department (KLRD), a married couple with two children making $50,000 to $70,000 would see a tax break of $1.25. A married couple without children, in the same income range, would see a break of only $0.75,” Rep. Christina Haswood (D) wrote in her email newsletter.
Speaker Hawkins tweeted out against this claim that started going around.
Some claim the middle class gets only .75 in tax relief, but that's a lie! Don't believe the fake news.
— Dan Hawkins (@DanHawkinsKS) January 22, 2024
The leg. plan actually provides about $800 in relief for a family of 5 making $70K!
A family of 4, making $40K saves $277 w/the #ksleg plan, but only $62 w/Gov. Kelly's plan. pic.twitter.com/2MWYhkn6Sy
I wanted to know more about this claim, so I went to the KLRD website and I could not find anything that mentioned anything that Rep. Haswood told her constituents. So, I reached out to KLRD to learn more about this claim. They connected me with Principal Economist Edward Penner who gave me some “background information not for attribution.”
According to Penner it is true that the single tax rate would reduce taxes for some taxpayers by an amount less than $1 under HB 2284, however, as he explained, he noted this was an answer that required some nuance. This is because this bill includes changes to both the standard deduction amounts and personal exemption amounts. According to Penner, this “would result in all taxpayers having lower taxable income, as those amounts are subtracted from adjusted gross income.” He also stated in an email that all taxpayers would see additional tax savings due to other changes in the bill. He also noted that the bill contained provisions for sales and property tax.
Claim #4: It is the Brownback tax experiment all over
To truly understand this claim, I think it is important to fully comprehend what the Brownback tax experiment was. When we talk about Brownback’s tax experiment, we’re talking about HB 2117 which was introduced in January 2011 and was approved by former Kansas Gov. Sam Brownback (R) in May 2012. The bill became effective July 1 of that year, becoming one of the largest income tax cuts in the state’s history.
This bill made a lot of major changes to income taxes. For one, it reduced the number of tax brackets from three brackets with income tax percentages of 3.5, 6.25, and 6.45 percent to two tax brackets with income tax percentages of 3.0 and 4.9 percent. On top of this, the bill eliminated taxes on “certain non-wage business income that had been subject to individual income tax.” What this means is that businesses, including LLC’s, Subchapter-S Corporations, and sole proprietorships, did not have to pay corporate income tax (7 percent at the time) as these types of businesses could pass the business income onto their owners.
Also, under the Brownback tax plan, a standard deduction for single head-of-household filers was raised from $4,500 to $9,000 while married taxpayers filing jointly would have their standard deduction raised from $6,000 to $9,000. There was also additional sections repealing tax credits previously allowed for individuals.
The experiment was infamous for being a failure and was terminated by the Legislature on June 6, 2017.
Prior to Gov. Kelly’s reelection in 2022, Kansas Republicans tried hard to distance themselves from Brownback’s failed tax experiment, but did not succeed in doing so. Due to this, it wouldn’t make sense for Republicans to try to redo an experiment that made them lose an important election. Which begs the question of what differences, if any, does the current Republican flat tax proposal have compared to Brownback’s experiment?
Similar to Brownback’s tax experiment, under the new Republican income tax plan, the number of tax brackets would be reduced. Where it is different is by the number it is reduced by. Brownback reduced the tax brackets from three to two. The flat tax proposal would reduce the brackets from three to one.
The standard deduction would also be raised under both. Kansans would not have to pay taxes on their first $6,150 for single filers and $12,300 for married Kansans filing jointly. However, the new proposal does something interesting with the standard deduction. According to a Conference Committee Report Brief, starting tax year 2024, the bill would “provide for all Kansas individual income tax standard deduction amounts to be annually increased by the cost-of-living adjustment determined under Section 1(f)(3) of the Internal Revenue Code.”
This would be one of the ways the bill would be used to aid taxpayers with the cost of inflation.
Unlike the Brownback tax experiment, the Republican flat tax would not do anything similar to the passing of income from businesses to businessowners. This is important as this seemed to be one of the major issues with the Brownback Tax Experiment.
In all, similarities can be drawn between the Brownback Tax Experiment and the Republican flat tax, however, there are many differences between the two bills that it is not completely honest to say they are the same thing.
Gov. Kelly vetoes HB 2284 and responses
This bill moved quickly through the chambers, passing the House 81-37 on January 17 with 7 absent, and passing the Senate 25-11 with 4 absent. It was then vetoed by Gov. Kelly on January 26, and in her reasoning for vetoing the bill, she essentially echoed the four talking points above.
“I support responsible tax cuts, but I refuse to sign into law a reckless flat tax that would take us back to Brownback while doing next to nothing for the middle class. This flat tax experiment would overwhelmingly benefit the super wealthy, and I’m not going to put our public schools, roads, and stable economy at risk just to give a break to those at the very top.
“I am dead set on making sure working Kansans get a tax cut this year. That’s why I’ve brought together Republican, Democratic, and Independent legislators to champion a $1 billion tax cut over three years, all while maintaining our state’s strong fiscal foundation. Our bipartisan tax cut will make it easier for families to pay for groceries, child care, diapers, and school supplies – while also cutting property, sales, and retirement taxes.
“While I urge the legislature to take this irresponsible flat tax experiment off the table once and for all, know that I will not let legislators leave Topeka this year without meaningfully and responsibly cutting taxes for middle-class families. I will call a special session if I have to – anything to ensure Kansans see tax relief, immediately. Let’s work together to cut taxes in a way that continues our economic growth while benefiting all Kansans, not just the wealthiest.
“Therefore, under Article 2, Section 14(a) of the Constitution, I hereby veto House Bill 2284.”
Opponents of the flat tax thanked Gov. Kelly for her veto.
Thank you @GovLauraKelly for vetoing a reckless flat tax that would take us back to Brownback while doing next to nothing for the middle class.
— Dinah Sykes (@dinah_sykes) January 26, 2024
Let's pass tax cuts that we can afford, that will support working families. #ksleg https://t.co/XBSTEtZLsm
Supporters of the flat tax came out with statements against Gov. Kelly’s veto.
“Governor Kelly has now axed a third tax relief bill in less than a year; choosing political wins over increasing Kansan’s paychecks,” Speaker Hawkins said in a statement Friday. “Today, the Governor said “no” to property tax relief that automatically adjusts for inflation, an elimination of income tax for 300,000 lower-income Kansans, a total elimination of property tax for some homeowners, a simpler tax code, an elimination of the sales tax on food, and an elimination of the tax on social security. House Republicans will remain focused on delivering tax relief to the people of Kansas by overriding the Governor’s veto.”
“Today the governor yet again put her radical ideology ahead of the people,” Senate President Masterson said in a statement Friday. “She is so focused on hyper-partisan politics that she has again vetoed a compromise tax plan that was primarily designed to increase the take-home pay for every Kansan and bring sustainable tax relief for hard-working taxpayers who are suffering under Bidenflation. The governor has proven again that she has abandoned the middle.”
AFP-KS State Director Elizabeth Patton also released a statement on Friday regarding the issue:
“Too many Kansans have been subject to failing, inflationary policies at the highest levels of government. Our legislative leaders prioritized every single hardworking Kansan in crafting HB 2284 with income, property, social security and grocery sales tax relief. Governor Kelly’s veto of this bill and 20 other tax reduction bills is making the burden on families even worse.
“It’s a shame that the governor is more than willing to give herself a pay raise yet prevent taxpayers – who fund her salary – from enjoying the same financial boost. We have more than $3 billion in state coffers and 1.6 billion in the rainy-day fund; why continue to squeeze Kansas taxpayers?”
Kansas Chamber President and CEO Alan Cobb also issued a statement on Friday regarding the issue:
“It’s ironic that the largest contributor to Governor Laura Kelly’s Middle of the Road PAC, the governor of Illinois, enjoys a lower SINGLE income tax rate of 4.95% than what Governor Kelly vetoed and called irresponsible today.
“Her administration has made false claims that HB 2284 would make the state budget go underwater. The fact is, it is her 13% year-to-year increase in proposed spending that would wreck the budget no matter which tax plan was passed, including her tax plan. Since she was elected, State General Fund spending has increased from $6.6 billion in 2018 to her proposed $11.1 billion in 2025.
“Even with a reduction to 5.25% as proposed under HB 2284, Kansas still would have the highest income tax rate in the region: Nebraska: 3.99% by 2027; single-rate, Colorado: 4.4% – single-rate, Missouri: 4.8% top rate (4.5% in some instances), Oklahoma: 4.75% top rate, Arkansas: 4.4% top rate
“The Kansas Legislature offered a proposal that included many of her tax priorities for this session, along with their top priority of a single rate. Governor Kelly finger points that politics are being played and reasonable tax policy should be worked out.
“Her veto of HB 2284 is reckless given how other states are lowering the tax burden on their citizens and businesses and is proof she is the one playing politics and really isn’t interested in meeting others in the middle of the road.”
The Republican Flat Tax v. Gov. Kelly’s Tax Plan
Gov. Kelly also has a tax plan which was introduced in both the Kansas House and Senate. In the House it is HB 2586 and was introduced on January 24. So far, HB 2586 has only been referred to Committee on Taxation. In the Senate it is SB 377 which was introduced January 22. This bill has been referred to Committee on Assessment and Taxation and will receive a hearing on Wednesday, January 31 at 9:30 a.m. The hearing can be watched here.
To look at what Gov. Kelly’s tax plan looks like, a press release from the Office of the Governor has stated that her plan would save Kansans “more than $1 billion over three years.” If passed, savings could start as soon as the beginning of April.
“The introduction of this bipartisan tax cut plan in both chambers is the first step toward putting money back in the pockets of hard-working Kansans,” Gov. Kelly said in a press release last Wednesday. “This comprehensive, fiscally responsible plan to cut property, sales, and retirement taxes benefits middle-class families—without putting at risk our public schools, roads, and stable economy.”
The press release also listed six things this tax plan would do:
Cuts state property taxes for Kansas homeowners;
Entirely eliminates state taxes on Social Security income;
Increases the standard deduction so Kansans pay less when filing their state income taxes;
Immediately axes the state sales tax on groceries, diapers, and feminine hygiene products;
Provides relief for working families in need of child care; and
Creates a back-to-school state sales tax holiday.
According to the estimated fiscal impact of this legislation there would be a total direct state benefit of more than $300 million each year for Fiscal Years (FY) 2025-2028.
Gov. Kelly has made comments on the flat tax proposal during a January 8 Tax Press Conference where she called the flat tax a “nonstarter.” She also suggested that implementing the flat tax would put the progress of Kansas in “jeopardy.”
“Over time, it would drive us right back into the ditch—and rely on money taken directly from our infrastructure, our public schools, and our housing and workforce efforts to foot the bill,” Gov. Kelly said during the Tax Press Conference.
However, a report from Kansas Policy Institute on January 22 suggests otherwise about the flat tax.
“If the flat tax bill passed by the Legislature becomes law, the state will still have $4.5 billion in reserves after three years,” The report reads. “That is after spending over $1 billion more on school funding, human service caseloads, and property tax relief.”
The report also suggests that, not only do most people fare better with the flat tax plan over Gov. Kelly’s tax plan, but specifically mentions low-income families faring better under a flat tax than under Gov. Kelly’s tax proposal:
“Under current law, a couple with an adjusted gross income (AGI) of $40,000 has a taxable income of $23,000 and pays $713 in income taxes. Kelly’s proposal with the standard deduction would save this couple $62, but that family saves $179 with the flat tax proposal, however.
“The biggest difference comes from exempting the first $12,300 from taxation. That change also means a family of four with AGI of $29,820 would pay no tax, but they would pay $335 under Kelly’s plan.”
A January 29 report from Tax Foundation suggests that a lower, flat income tax would help promote long-term economic growth in Kansas, more so than the Democratic governor’s proposal.
The Tax Foundation’s report lists many similarities between the Republican flat tax proposal and Gov. Kelly’s tax proposal, including:
reduce privilege tax rates on financial institutions;
accelerate the ongoing phaseout of the statewide sales tax on groceries;
exempt all Social Security benefits from state income taxes retroactive to the start of the year;
increase to $100,000 the amount of a residential property’s appraised value that is exempt from the statewide property tax levy for schools; and
increase from 17 to 18 percent the allocation of sales tax revenue to the state highway fund.
However, the Tax Foundation suggests that Kansans would be better off in the long-term with the flat tax proposal, specifically due to lowering the top marginal rate from 5.7 to 5.25 percent.
“Numerous studies have shown a correlation between the lowering of a state’s top marginal individual income tax rate and increases in in-state investment, GDP growth, job growth, wage growth, and inbound migration,” the report reads. “Personal and business decisions about labor, relocation, and investment are made on the margin—that is, based on how taxes will affect the next dollar of income, not previous dollars of income. As such, lowering the top marginal rate while moving to a flat tax structure would provide a much greater economic benefit than a one-time increase to the standard deduction.”
States that have a flat tax
According to ITEP, 11 states have a flat tax including: Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, Mississippi, North Carolina, Pennsylvania and Utah. An additional two states—Iowa and Georgea—are set to move to a flat income tax by 2026 due to legislation. Below are some facts about each state in regards to their flat tax.
Arizona: Has had a flat income tax since January 1, 2023 at a rate of 2.5 percent. This is the lowest flat income tax rate of all states with flat income taxes.
Colorado: Has had a flat tax since 1987. The rate of the tax is 4.4 percent. Groceries and prescription drugs are exempt from sales tax, but clothes and vehicles are not. State sales tax is 2.9 percent, but localities can add up to 8.3 percent.
Idaho: Imposed a flat tax of 5.8 percent in 2023 on taxable income over $2,500 ($5,000 for joint filers). Like the Kansas Republican flat tax proposal, the threshold will be adjusted annually for inflation. Prescription drugs are tax exempt, but groceries are not. Their state sales tax rate is 6 percent.
Illinois: Has had a flat tax since April 1969. It has a rate of 4.95 percent. On the November 3, 2020 ballot in Illinois a constitutional amendment known as ‘Allow for Graduated Income Tax Amendment’ was voted on by the people of Illinois and failed to pass. Illinois is one of the only states that do not tax retirement income. However, Illinois has one of the highest sales tax rates in the U.S. at 6.25 percent (Kansas has a sales tax of 6.5 percent).
Indiana: Indiana’s tax brackets have not been changed since at least 2001, and the rate recently lowered in 2022 from 3.23 percent to 3.15 percent. Some counties in Indiana impose their own income tax as well. Groceries and prescription drugs are exempt from sales tax. Their sales tax rate is 7 percent.
Kentucky: Starting in 2018, Kentucky has a flat tax. The flat income tax has a rate of 4.5 percent. They have a sales tax of 6 percent, but groceries and prescription drugs are exempt from sales tax.
Michigan: In Michigan’s constitution, ratified in 1961, it states, “No income tax graduated as to rate or base shall be imposed by the state or any of its subdivisions.” The tax rate is at 4.25 percent, though cities can charge an additional 2.4 percent.
Mississippi: The Mississippi Tax Freedom Act of 2022 implemented a flat tax in the state. For 2023, the flat tax rate was 5 percent, but due to legislation. In 2024 it will be 4.7 percent. 2025 will be 4.4 percent. And 2026 will be 4.0 percent.
North Carolina: This state supposedly “sparked” a “flat tax revolution” in 2022, and they’re planning on lowering the income rate until 2027 due to legislation, eventually hitting 3.99 percent in a few years.
Pennsylvania: The history of Pennsylvania’s flat income tax is really long, spanning back to the 19th century. The state Supreme Court has ruled that a graduated income tax would be against the state constitution.
Utah: This state has had a flat income tax since 2018. Its tax rate in 2023 was 4.65 percent. While state sales tax is not relatively high, combined state and local sales tax averages 7.19 percent.
Due to these states seeming to be doing okay under a flat tax, some for decades, I think it’s fair to say that a flat tax is not the end of a state’s economic success so long as it is implemented smartly.
Thanks for reading. Be sure to share and subscribe. You can also help support independent journalism in Kansas by buying me a coffee at buymeacoffee.com/kscon.
Ian Brannan
Ian Brannan is an independent journalist who founded The Kansas Constitutional in April 2022. His work focuses on issues including abortion, Convention of States, drug policy, education, government, LGBT issues, media, and more.
