Every Kansan will feel the sting of the budget and accompanying tax hikes passed at the end of the state Legislature’s marathon 2015 session. Homeowners, workers, businesses, smokers — all will pay more.
But no group, experts believe, gets hurt more than the state’s low- and moderate-income workers, those earning between $30,000 and $50,000 a year.
They now face higher taxes on essential purchases without most of the subsidies that protect poorer Kansans from government’s bite.
Low-income workers, unlike those with significantly higher earnings, must watch their pennies carefully to pay for other essentials such as transportation and housing. Soon, more of those pennies — which quickly grow to dollars — will be on their way to Topeka.
“There’s only so much you can squeeze from the lowest end of the scale,” said Annie McKay, executive director of the Kansas Center for Economic Growth. She called the tax bill deeply disappointing.
“We’ve moved up the food chain,” she said. “This looks to pick the pockets of lower- and middle-income Kansans.”
Kansas will soon collect 6.5 cents on every dollar that residents pay for food. That’s among the highest sales tax rates on food in the country.
To soften the blow, Kansas offers a tax credit for workers earning under $30,615 a year. The credit is restricted — it can’t be refunded, and it generally doesn’t apply to workers under 55 who have no children — but it can provide a family of four up to $500 a year in state tax relief as an offset to the food sales tax.
The credit, however, isn’t available for workers above that threshold. A family of four earning $30,615 or more, spending $200 a week on food, will now average $676 a year in Kansas food sales taxes without a compensating credit.
“It’s going to take money out of their pocket, and that’s very unfortunate,” said Kathy Damron, a lobbyist for KC Healthy Kids, a nutrition advocacy group. “Food is not a discretionary item.”
Some lawmakers in the Kansas City area now think shoppers will take their grocery business to Missouri, where food sales taxes are dramatically lower. At $200 a week, a Kansas grocery shopper can save almost $550 a year in sales taxes just by crossing the state line.
For someone earning $600 a week, those savings are probably critical.
Kansas Rep. Marvin Kleeb, the Overland Park Republican at the center of this year’s tax negotiations, said he is committed to a vote on reducing the food sales tax in 2016 — a “nice, positive thing to vote on,” he said during the tax debate last week.
The tax hit for low- and moderate-income Kansans isn’t limited to food purchases.
That higher sales tax will now be embedded in clothing purchases, cars, nonprescription medicines and more, costing taxpayers cash. Businesses might raise their prices to cover their own higher taxes. An increase in the cigarette tax will now cost a pack-a-day Kansas smoker $471 a year. (The Missouri tax of 17 cents a pack translates to $62.)
And the new tax bill contains other hikes, unrelated to purchases, that will pinch the state’s residents. The package reduces the state deductibility of local property taxes and mortgage interest, driving up most Kansans’ income tax payments. The 2012 income tax rate cuts — which studies have shown actually increased tax liabilities for poor and low-income residents — have been locked in place, at least for the time being.
There are mechanisms in place to protect the very lowest wage earners and the unemployed from some of these costs. Purchases with food stamps, for example, must be sales tax free. The extremely poor can access Medicaid for their children’s health needs and Temporary Assistance for Needy Families, the welfare program, for other expenses. The poor pay little or nothing in income taxes and are much more likely to rent than to own homes, a potential savings in property taxes.
A Kansan earning between $30,000 and $50,000 a year in a four-person family typically qualifies for a refundable income credit worth about $900 a year. But that foursome falls in the state’s highest income tax bracket. Beyond the earned income credit, the public safety net for such earners is small.
At the same time, tax advantages for higher-income earners in Kansas are substantial.
Like all Kansans, the top earners will pay higher sales taxes. But the 2012 income tax cuts saved the top 1 percent of earners an average of $19,786 a year, studies show. That’s far more than the added costs of the sales tax.
“What we’re going to see in the coming years is a growing number of working poor in Kansas, who don’t have access to support but don’t have enough to make ends meet,” McKay said.
Gov. Sam Brownback has said his tax policy is designed to provide more jobs for Kansans by providing relief to small business owners. Those taxpayers were largely untouched in the 2015 budget deal, although the promised jobs have largely failed to materialize.
Signs exist that even the limited support for progressive tax and spending policies in Kansas is under stress. Brownback has proposed reducing the earned income tax credit in the state, for example. Kansas lawmakers further restricted access to welfare benefits and food stamps. They ultimately rejected a lower sales tax rate on food in the 2015 session.
Lawmakers have also refused to expand Medicaid to the working poor while privatizing the current Medicaid program.
Few observers think legislators’ attitudes are likely to change next year. Kansas covered roughly half of its $800 million budget deficit with one-time transfers and accounting changes this year, measures unlikely to be available in 2016.
Kansas, in essence, will be $400 million in the hole this time next year, absent an acceleration of tax collections between now and then. A court decision ordering more spending on schools could make the budget more difficult.
That may increase the pressure for even higher taxes — or spending cuts.
“This runaway spending was a long time in the making,” anti-tax activist Grover Norquist said in an email last week that urged spending cuts, not tax increases, in Kansas.
Yet next year’s potential for a Kansas crisis — and the real one this year — has dampened enthusiasm for serious tax cuts in most other states. Several Republican governors have cited the Kansas struggle in scaling back their own tax reduction plans this year.
Even most Republican presidential candidates have shied away from broad, across-the-board tax cut plans. The anti-tax fervor that has dominated the GOP for decades has given way, at least in part, to targeted tax reduction plans that might do less damage to the government’s revenue stream.
Yet the anti-tax sentiment in the modern Republican Party remains strong, Kansas notwithstanding.
“There are going to be different kinds of tax cuts offered,” said Richard Skinner, a political science professor at Johns Hopkins and George Washington universities. “But I think all the Republican candidates will offer some sort of major tax cut.”