An individual who earns $15,000 would see just $1 in tax savings under the plan, according to an analysis from the Institute on Taxation and Economic Policy, a Washington, D.C.-based nonprofit that provides research on state and federal tax policies. Meanwhile, the top 20% of wage earners would receive about 70% of the total $764 million tax cut.
Senate President Ty Masterson championed the flat tax proposal as a way to benefit all Kansans, rather than “those less fortunate.” Senate Bill 169 would apply a universal 4.75% income tax rate, replacing a current structure that applies a 3.1% rate for income under $15,000, 5.25% for income between $15,000 and $30,000, and 5.7% for income above $30,000.
Masterson connected the flat tax proposal to Senate Bill 248, which rolls back tax relief on food, except for a select list of “healthy” staples. The idea is to save hundreds of millions of dollars by leaving the state sales tax in place on non-healthy food so the state can afford the flat tax cut.
Emily Fetsch, director of fiscal policy at Kansas Action for Children, said the plan is concerning because it is expensive and overwhelmingly benefits the highest-income Kansans. KAC promotes economic policy that will improve the lives of Kansas children and families.
“We have been here before, and we know how hard it is to make changes to income tax once we’ve made this tax cut,” Fetsch said. “Where they usually have to make changes is to other types of taxes — increased sales tax, property tax, excise tax.”
The Senate tax committee passed the flat tax bill Tuesday. The bill exempts the first $5,225 of income to avoid imposing a tax increase on the lowest wage bracket — by the slimmest margin possible.
Under current law, someone earning $15,000 and paying 3.1% would have a $465 tax bill. Under the proposed flat tax, someone earning the same amount would pay 4.75% on $9,775 in income for a tax bill of $464.
At $764 million, the institute’s projected annual cost of the flat tax plan is significantly higher than the $566 million projection by the state budget director.
The institute’s analysis shows the bottom 20% of wage earners — those earning less than $25,000 — would see an average tax cut of $49. Those who earn between $25,000 and $53,000 would get $95. Those who earn between $53,000 and $86,000 would get $190. Those who earn between $86,000 and $131,000 would get $464.
The top 1% of wage earners, who make more than $622,000, would see an average tax break of $12,795.
Critics of the plan have drawn comparisons to former Gov. Sam Brownback’s failed “tax experiment,” which included elimination of the income tax for businesses and a reduction of the income tax for high-wage earners, in 2012.
Fetsch, the KAC analyst, said the flat tax proposal is similar to the 2012 cuts because they both involve a dramatic change to income tax rates that will lead to significant revenue loss. That would jeopardize the state’s ability to address unmet needs, she said, such as fully funding special education in K-12 public schools or reducing the waiting list for disability services.
Proponents of the flat tax say it will help reverse years of population losses by attracting people to move to Kansas.
Nationally, Fetsch said, 1.5% of people move each year, and those decisions are based on jobs and family, not tax policy. Many states have changed tax policy in recent years, she said, but that didn’t coincide with mass migration.
She also pointed out the state didn’t see a population surge during the Brownback years, despite similar claims made in support of the 2012 tax cuts.
“The talking points of migration and economic booms and trickle-down economics are all apparent in both policy pushes,” Fetsch said.
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