Kansas is third-worst in nation for retirement, report says. Are high taxes to blame?
What does a state do when its taxpayers feel pinched but its government feels deprived?
It has a no-holds-barred debate about needs, wants, limits and priorities — which is precisely what Kansas leaders should do now.
The Sunflower State is enmeshed in an increasingly thorny dilemma: how to reconcile demands for more government spending with an already-high tax burden.
Few things have put that quandary into sharp relief quite like a new report from Kiplinger that ranks Kansas as the third-worst tax climate in the nation for retirees.
Say what? Kansas is high-tax? It seems incongruous for a state with famously modest and level-headed denizens.
Yet, there it is, writes business forecaster and personal finance adviser Kiplinger: With an average 8.67% state and local sales tax and a property tax that is 15th-highest in the nation and a creeping-up effective income tax rate of 4.04% for single filers and 5.04% for joint filers, Kansas has a tax climate exceeded only by Nebraska and Connecticut for its unfriendliness toward retirees.
“Distributions from private retirement plans (including IRAs and 401(k) plans) and out-of-state public pensions are fully taxed,” Kiplinger further notes. “Kansas also taxes Social Security benefits received by residents with a federal adjusted gross income of $75,000 or more.”
Ask Florida — or U.S. expatriate-rich Costa Rica for that matter — whether retirees are an advantageous group to court. They are. Yet, it seems Kansas is doing quite the opposite.
Notwithstanding that most property taxes stay local, and the state only gets about 2% of the take, Kansas leaders must address the total burden on all taxpayers, though lawmakers and the governor might want to view retirees as the canary in the mine.
Problem is, it may be easier to turn the state’s actual climate, rather than the tax climate, into something resembling Florida’s — especially since Kansas is morally bound to finally expand Medicaid sooner rather than later.
Senate Assessment and Taxation Committee chairwoman Caryn Tyson, a Republican from Parker, notes that state general fund spending is already slated to increase by more than 11% this fiscal year, even without Medicaid expansion. Revenues, meanwhile, were estimated to increase 5%.
Spending, Tyson maintains, is out of control.
A 2016 Kansas law requires state agencies to phase in “performance-based budgeting,” which takes a critical look yearly at each agency’s, and each program’s, outcomes and usefulness. Tyson claims agencies aren’t following the statute. She says the Legislature should consider putting some teeth in the law — and in the meantime, she says unspecified legal remedies, which may involve the attorney general, are being contemplated.
Ultimately, Tyson says, the state government and its many agencies need to be forced into quitting the age-old spend-it-or-lose-it habit of baseline budgeting — the bureaucrat’s tendency to expend unspent funds lest it appear they weren’t really needed.
State agencies are still using baseline budgeting, Tyson argues, which is starting next year’s budget with this year’s, then building in increases.
Then there’s waste, such as the case of the unused computer equipment: When former Gov. Sam Brownback’s administration abandoned a computer upgrade mid-purchase, it left $10 million in hardware gathering dust in a state office building in Topeka. It was ultimately donated to Kansas State University, but Tyson holds that up as an example of inefficiencies that need to be cut from state government.
The problem with the move from baseline to performance-based budgeting is the inertia involved: Bureaucracies that have grown used to the comforts of incremental budget increases have little incentive to move to performance-based budgeting without significant and persistent prodding from upstairs. In this case, from the governor’s office.
Neither Brownback, a Republican, nor current Democratic Gov. Laura Kelly appear to have applied overwhelming pressure to move agencies over to performance-based budgeting — although one Kelly administration consultant has, notably, sung the praises of zero-based budgeting, in which entities must justify their budgets from scratch rather than merely adding onto past budgets.
“Executives increasingly are recognizing zero-based budgeting (ZBB) for its ability to extract cost savings and transform a company’s culture related to its spending approach,” McKinsey & Company said in a 2018 article at McKinsey.com. “One element that sets ZBB apart from other cost-reduction measures is that it enables the organization to make active, well-considered choices about spending rather than merely revise the ongoing trajectory of prior spending.”
The Republican-led Kansas Legislature and Democratic governor should embark on a spirited but civil debate on this tug-of-war between overburdened taxpayers and a sometimes underfunded — and other times overfunded — state government.
The task of adequately funding state agencies can’t be allowed to break the backs of taxpayers. Especially retired ones.