Monday, April 15, 2013

Right- and left-leaning analysts say Kansas tax plan is deeply flawed

Analysts both left and right agree to dislike Brownback's tax plan.

Posted By on Mon, Apr 15, 2013 at 11:49 AM

Brownback gets guff from Governings tax guys.
  • Kansas Historical Society
  • Brownback gets guff from Governing's tax guys.

A pair of tax policy wonks on both ends of the political spectrum met in the middle in an analysis of Kansas Gov. Sam Brownback's tax plan; it's a bad idea, both say.

Governing Magazine, a publication favored by government bureaucrats, published the thoughts of right-leaning Joe Henchman of the Tax Foundation and Nick Johnson of the left-leaning Center on Budget and Policy Priorities, who agreed that Kansas' tax-reform plan was the worst that passed any state's legislature in the last year.

A couple of the hallmarks of Brownback's plan are cutting the top two individual income-tax rates and also exempting state income taxes for companies structured as limited liability corporations (LLC) or subchapter S corporations.

"That's an incentive to game the tax system without doing anything productive for the economy," Henchman says. "They think things like the pass-through exemption will encourage small business, and to be fair, it might. But they are doing it in a way that violates the tax principle of neutrality."

Johnson insists that the policy is almost a complete failure.

"The law fails almost every test of good tax policy, starting with adequacy, affordability and sustainability," Johnson says. "It fails both vertical and horizontal equity tests. Vertically, it's beneficial to high-income taxpayers and harmful to low. It doesn't do much for the middle, either. Horizontally, its exemption of pass-through entities creates inequities and tax avoidance, which of course then goes back to sustainability because it balloons cost."

Johnson also points out that Nebraska considered deep tax cuts similar to Kansas' and would reconcile the ledger by also doing away with sales-tax exemptions. Nebraska lawmakers blanched at the idea when businesses complained that the proposal wouldn't let them eat their tax-iced cake, just merely stare at it.

"Business liked the repeal of income taxes but did not want sales-tax exemptions going away," Johnson said.

Brownback's office didn't think much of either man's take on his signature tax legislation.

"The Governor's tax policy is the reason why [sportswear manufacturer] GTM chose to add 600 jobs to its location in Manhattan rather than in Texas," wrote Brownback spokeswoman Sherriene Jones-Sontag in an e-mail to the Wichita Eagle. "Almost every one of our neighbors is trying to move in this direction."

Read Governing's piece, titled "What's Wrong with Kansas' Tax Reform," for yourself to see which state had the best tax plan. (Hint: It wasn't Missouri.)

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