Gov. Laura Kelly’s tax reform council Friday weighed recommendations of a think tank hired by the Kansas Chamber against observations by experts at a separate think tank that examined options from a markedly different perspective.
Urban Institute’s analysts said the Tax Foundation’s 140-page report released in December contributed to debate about reshaping the Kansas tax code, but fell short by failing to attach revenue adjustments to a Christmas tree of proposals so policymakers had a clear picture of consequences.
“You can’t just do easy stuff here,” said Richard Auxier, a research associate with the Urban Institute who focuses on state and local tax policy. “Tax reform isn’t just about changing tax laws. It’s got to address Kansas’ politics, its budget and its values.”
He said the institute’s evaluation of 27 tax commissions in 22 states and the District of Columbia pointed to a simple reality.
“We found a real quick way to sink a tax report. And that is to only hear from one side,” Auxier said. “What lawmakers need are tools. What they need are explanations. What is the problem with the current tax system? Why is your proposal going to fix it?”
Michael Lucci, the Tax Foundation’s vice president of state projects, said the organization’s report for the Kansas Chamber offered a reform framework for creation of a fair, stable and pro-growth system of taxation. He pushed back against a narrative suggesting the Tax Foundation embraced big tax cuts without concern for the budget impact of revenue losses.
The foundation did recommend Kansas lower individual and business income taxes, provide tax relief on tangible personal property such as vehicles and concentrate on broadening the sales tax.
“We think the time is right for Kansas to engage on the broad view of the tax code,” Lucci said. “Kansas has gone through a really incredible amount of tax changes.”
He referenced the 2012 state tax overhaul signed by Gov. Sam Brownback, the 2017 reversal of most of that policy over Brownback’s veto and subsequent federal reform signed by President Donald Trump or resulting from a U.S. Supreme Court decision.
Of particular interest to the Kansas Chamber, the Tax Foundation encouraged Kansas lawmakers to exempt international income from state income tax and allow individuals to itemize deductions on state tax returns while taking the federal standard deduction. Both ideas championed by the Kansas Chamber were vetoed by Kelly during the 2019 legislative session.
Alan Cobb, president of the Kansas Chamber, said Kansas’ economic performance lagged other states and the Tax Foundation’s report offered legislators an understanding of factors businesses consider when deciding where to invest or expand.
“It is frustrating that the governor’s tax council seems to be more concerned with increasing tax revenues,” Cobb said. “Our state’s elected leaders must get serious about modernizing our tax code.”
Council member Duane Goossen, a former state budget director and state legislator, said tax revenue reductions were a prominent feature of the Tax Foundation’s report.
“Even if policymakers would consider these things of great merit, it’s not really responsible or prudent or realistic to enact them given our current financial situation,” Goossen said.
Lucci said the state’s greatest opportunity for revenue growth was pulling more transactions into the sales tax.
The foundation also believes Kansas should perform a cost-benefit analysis on dozens of corporate tax incentives, he said. That will help to eliminate or shrink programs not serving the public interest, he said.
“There is pretty good research that shows a lot of incentives reward companies for doing things they were going to do anyway,” Lucci said.
The governor’s tax council released an interim report in December calling for reform, but the 2020 Legislature hasn’t taken action on those. The council asked lawmakers to reduce revenue $53 million by adopting a refundable food sales tax credit. It also sought to raise $45 million with a sales tax on digital property and subscription services and $30 million by collecting sales tax on transactions involving large online retailers.
Kansas House committees have endorsed a pair of tax reform bills. One would increase the standard deduction on individual state income taxes at a cost to the treasury of $48 million. the other would cost the state $62 million by allowing individuals to itemize deductions on state tax returns while claiming a standard deduction on federal taxes.
“We’re anxiously looking at what the Legislature does this year,” said former Kansas Senate President Steve Morris, who co-chairs the governor’s tax council.