Monday, December 22, 2014

Brownback’s sales tax plan another risky experiment

5/6/2013

Kansans were supposed to see their sales tax go down from 6.3 percent to 5.7 percent July 1, however Gov. Sam Brownback’s tax plan, which is heavily dependent on sales tax, means it probably won’t happen. The estimated $270 million reduction in sales tax revenue — should it sunset as it is supposed to do — is too hefty of an amount to be offset by property taxes, especially since the governor wants the state’s income tax to be eliminated. While this might just seem like one tax being traded for another, it is a tax increase over what was supposed to happen.

A Kansas Senate bill hopes to make the 6.3 percent sales tax permanent, thus preserving the $2.19 billion the state annually generates from the tax. As the state Legislature reconvenes this week, this is but one aspect of the Sunflower State’s tax policy under consideration. With more than 41 percent of the state’s general fund budget coming from sales tax revenue today, it is clear such government services as education, health care and social services will be jeopardized without preservation of the higher sales tax amount. Even if the sales tax amount stays the same as it is now, it might not generate enough revenue to offset the proposed staggered elimination of income taxes.

Kansans were supposed to see their sales tax go down from 6.3 percent to 5.7 percent July 1, however Gov. Sam Brownback’s tax plan, which is heavily dependent on sales tax, means it probably won’t happen. The estimated $270 million reduction in sales tax revenue — should it sunset as it is supposed to do — is too hefty of an amount to be offset by property taxes, especially since the governor wants the state’s income tax to be eliminated. While this might just seem like one tax being traded for another, it is a tax increase over what was supposed to happen.

A Kansas Senate bill hopes to make the 6.3 percent sales tax permanent, thus preserving the $2.19 billion the state annually generates from the tax. As the state Legislature reconvenes this week, this is but one aspect of the Sunflower State’s tax policy under consideration. With more than 41 percent of the state’s general fund budget coming from sales tax revenue today, it is clear such government services as education, health care and social services will be jeopardized without preservation of the higher sales tax amount. Even if the sales tax amount stays the same as it is now, it might not generate enough revenue to offset the proposed staggered elimination of income taxes.

Clearly the state would benefit if it attracts new business and industry, but this taxing strategy practically mandates that new businesses must immediately call Kansas home and quickly prosper, otherwise more government expenses will need to be cut and, like sequestration, the cuts might not be in the places that taxpayers are comfortable with and willing to accept.

During the first quarter of this year, retail sales grew 3.7 percent in Kansas and 7.7 percent in Ottawa, compared to the same period last year. That is encouraging as the economy continues its slow rebound.

Still, with the state already planning to rob $140 million from the state’s highway fund, it seems implausible that this new revenue strategy will be effective. Research by the Kansas League of Women Voters showed the amount of sales tax receipts in the state would have to more than double current rates to make up for the proposed revenue loss from income tax revenue. Eliminating some sales tax exemptions — such as on pharmaceuticals, farm machinery and professional services — could spread the paid around a little bit, but the estimated $176 million in new sales tax revenue still doesn’t equate to the $2.8 billion income tax revenue loss.

Perhaps the governor knows something that his own budget office prognosticators don’t ... but this looks like a risky venture with about 2.8 million Kansans left to hold the bag on this financial experiment.

Hang on tight. It looks to be a wild ride.

 

— Jeanny Sharp,

editor and publisher

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