Some conservative lawmakers are pushing for a flat tax that would make everyone pay a 3.9 percent income tax and eliminate most tax breaks, including those for some business owners.
Flat tax proponents say a single rate is fairer and would treat taxpayers equally. Opponents say that a flat tax would increase taxes on lower income residents, while lowering them on those who make more.
Gov. Sam Brownback’s office acknowledged last week that the governor has discussed a flat tax proposal with lawmakers during the past few months, and hearings are scheduled Monday on two flat tax bills.
The Truth Caucus, a group of conservative lawmakers, is working on a plan with a 3.9 percent flat rate, said Rep. John Whitmer, a Wichita Republican. But some lawmakers also are looking at setting the rate at 4.9 percent and reducing or eliminating the sales tax on food, he said.
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Kansas taxes food at the same rate as other goods — 6.5 percent — and, when combined with local sales taxes, has one of the highest tax rates on food in the nation.
Whitmer said conservatives developing a flat tax also want no new spending in the state budget. Lawmakers are expected to begin work this week on a budget bill for the 2018 and 2019 fiscal years. The state is facing a projected $1.1 billion deficit over the next two years. The 2018 fiscal year begins July 1.
Kansas has two personal income tax brackets, with a low rate of 2.7 percent and a higher rate of 4.6 percent. The higher rate applies to individuals who make at least $15,000, or married couples who make $30,000 or more.
Whitmer acknowledged a flat tax may not have enough support, but suggested if the bill doesn’t attract enough votes, lawmakers who voted against it may pay a price politically.
“Conservatives can’t just be the party or the group of no. We have to have our idea. So this is going to be an idea where we say, ‘Hey, this is a concept, here’s our plan. Come with us,’ ” Whitmer said.
House Minority Leader Jim Ward, a Wichita Democrat, dismissed the idea of a flat tax. He said the Legislature is made up of three parties: Democrats, moderate Republicans and “ultra-conservatives.”
Conservatives are drafting bills they hope can get votes from moderate Republicans and Democrats, Ward said. He predicted a flat tax wouldn’t advance.
“I think ultimately there may be a few more votes, but I don’t think any of that has legs in terms of getting the number of votes to pass out of either chamber or getting the governor’s signature,” Ward said.
A flat tax would need to eliminate some tax exemptions, said Rep. Kristey Williams, an Augusta Republican. She favors ending the exemption for pass-through business income, used by approximately 330,000 entities. That exemption for limited liability corporations and other closely held businesses cut state revenue by about $260 million a year.
The state’s revenue problems are being caused by too many tax carve-outs and too few people paying into the system, Williams argued.
How much a flat tax would raise depends on a variety of factors. A flat tax could tax every dollar earned, or could exempt income up to a certain amount — potentially the first $10,000 or $20,000 earned. It also depends on the rate used.
The state’s current income tax system generated about $2.6 billion last year, according to the Kansas Legislative Research Department.
A spokeswoman for Brownback said last week that the governor is open to considering legislation that makes the tax code “fairer, flatter and simpler” while keeping the tax burden as low as possible on families and businesses. Some lawmakers believe a flat tax stands a better chance of getting the governor’s approval than increasing tax rates.
But Rep. Melissa Rooker, a Fairway Republican who opposes a flat tax, said she doesn’t know what the governor would find acceptable. Brownback hasn’t shown any discernible leadership other than his veto of a tax bill last month, she said, adding that it was only three votes away from being overridden.
“I think, at a point, the Legislature needs to recognize the power we have to chart the course we take,” Rooker said.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said a flat tax doesn’t stand a realistic chance of passing.
A flat tax would hurt low earners “a lot more” than the tax plan Brownback vetoed last month, said Sen. Dinah Sykes, a Lenexa Republican.
“I do not support it,” Sykes said. “It’s not real revenue reform. It doesn’t address the problem.”
Eight states have flat tax systems, according to the Tax Foundation, a Washington-based group that advocates for low taxes. The states span the political map, said Scott Drenkard, an analyst for the organization. They include conservative states such as Indiana as well as more liberal states like Massachusetts.
Flat taxes tend to produce revenue with more stability, Drenkard said, a feature that may prove attractive to Kansas at a time when revenues are volatile. He argued a single rate also offers protection to taxpayers because if lawmakers want to raise taxes, they must do so on everybody.