The Budget Blog

Analyzing the tax plan

By Duane Goossen

February 20, 2012

The governor’s proposed tax plan, if implemented, would have a long-term effect on income to the State General Fund. A variety of resources provide information about the plan and analyze what it might produce.

Some support Gov. Sam Brownback’s contention that the tax reductions he’s proposing would stimulate the Kansas economy and add jobs. Others suggest that his plan would lower taxes for some Kansans and increase them for others. And one says that the net effect of something like the governor’s plan or the alternative proposal crafted by House Republicans would cost more jobs than it would create.

House Bill 2560. The actual bill (PDF) introduced in the Legislature is 63 pages long and a very dense read. However, it provides the exact legal language of the proposed changes to the Kansas tax code.

Fiscal Note for House Bill 2560. The fiscal note (PDF), which was produced by the Division of Budget, gives a concise summary of the tax plan and lays out the financial implications. According to the fiscal note, the tax plan would reduce State General Fund revenue by $89.9 million in FY 2013, $99.0 million in FY 2014, $60.8 million in FY 2015, $52.6 million in FY 2016 and $49.9 million in FY 2017.

Explanation from the Governor’s Budget Report. A nine-page explanation (PDF) of the plan originally was released as an addendum to Volume I of the Governor’s Budget Report. The explanation presents the governor’s rationale for the plan.

Effect of plan on different income classes. This half-page table (PDF) from the Department of Revenue shows how the tax plan would affect the income tax liability of different income groups. The average income tax liability for Kansans making $25,000 or less annually would go up, while the average tax liability for all other income groups would go down.

Governor’s plan compared with House plan. House Republicans have released an alternate tax plan to the one proposed by the governor. This document from the Kansas Legislative Research Department (PDF) gives a side-by-side comparison of the two plans and compares them with current law. The House GOP plan reduces the income tax at a slower rate than the governor’s plan, results in a net reduction in taxes for all income categories and allows the sales tax increase passed at the height of the recession to expire as required by current law.

Institute on Taxation and Economic Policy (ITEP) study. A short two-page analysis from ITEP (PDF) was released through Kansas Action for Children. The analysis attempts to show the tax effect of the plan on different income groups. It indicates that the governor’s tax plan would raise tax liability for lower income levels and lower tax liability for upper income levels.

Center on Budget and Policy Priorities study. This study (PDF), done soon after the tax plan was proposed, looks closely at just one aspect of the tax plan: the proposed elimination of income tax on pass-through income from limited liability companies and Subchapter S corporations. The study concludes that much of the benefit of this provision would flow to large, already established businesses.

Kansas Economic Progress Council study. This lengthy study (PDF) does not directly address the governor’s tax plan but was initiated to analyze House Substitute for SB 1, a bill that would reduce future tax collections in a similar way. The research analyzes the economic implications of the proposed tax reductions and concludes that corresponding spending reductions would cost the state more jobs than the tax reductions would create.

American Legislative Exchange Council (ALEC) Report: Rich States, Poor States. Although the ALEC report (PDF) does not specifically analyze the governor’s tax plan, it supports his contention that reducing the income tax would spur economic activity. Brownback wrote the foreword to the report.

--> Listen to a related KHI News Service story: Plans to put a cap on state spending — and phase out the income tax — are commanding a lot of attention at the Kansas Statehouse.