March 2014

Kansas: Shaking Up the Status Quo of Taxing and Spending

by Amy K. Frantz 

Our neighboring state, Kansas, adopted tax-reduction legislation in 2012 and passed a reform package again in 2013 to make improvements on the 2012 tax bill. According to a media release from Governor Sam Brownback (R):

The [2012] law collapses the current three-bracket structure for individual state income taxes (3.5, 6.25 and 6.45 percent respectively) into a two-bracket system using rates of 3.0 and 4.9 percent. The business income exemption eliminates certain non-wage business income for small business owners (income reported by LLC’s, Subchapter-S Corporations, and sole proprietorships on lines 12, 17, and 18 of federal form 1040).

The law also flattens the tax structure and increases the standard deduction amount for single head-of-household filers from $4,500 to $9,000; and for married taxpayers filing jointly from $6,000 to $9,000.[1]

In addition to the income tax changes, Governor Brownback and the Republican-controlled Kansas Legislature adopted economic development incentives, including “letting businesses of any size deduct 100 percent of the expense of new business equipment and machinery” and the creation of Rural Opportunity Zones (ROZ) “to help recruit people to counties with sharply declining populations.”[2]

Fifty counties which have experienced double-digit population loss over the past 10 years have been designated ROZ counties. The majority are in far northwestern Kansas, but some, such as Kingman in south-central Kansas, are near more urban areas (Wichita)…Those who move to ROZ counties will have their state income taxes waived from 2012 – 2016 if they lived outside the state for the previous five years, or lived in Kansas but had an income of less than $10,000.[3]

In 2013, the Kansas Legislature and Governor Brownback adopted additional income-tax reforms that:

  • Lower income-tax rates even further, ultimately to 2.3 percent on the first $30,000 of income and 3.9 percent on income above that.
  • Set the sales-tax rate at 6.15 percent beginning in July 2013. At first glance, this seems like a tax cut, as the sales tax was 6.3 percent. However, the tax had been scheduled to drop to 5.7 percent in July 2013.
  • Reduce the value of itemized deductions by 30 percent this year and by 5 percent per year until 2017, when they will be reduced 50 percent permanently. The charitable deduction is an exception to this treatment and will remain fully deductible.
  • Decrease the standard deduction for married filers filing jointly ($7,500) and heads of household ($5,500), down from $9,000. The amounts are still higher than pre-2012 law ($6,000 and $4,500, respectively).
  • Restore the low-income, food-tax credit.
  • End the itemized deduction for gambling losses.[4]

The Rural Opportunity Zone program was also expanded from the original 50 counties to cover 73 counties in Kansas.[5]

Joseph Henchman and Scott Drenkard of Tax Foundation indicate that “while the [2013] bill is a tax increase, the combined effect of both years’ bills remains a net tax cut.”[6]  They believe Governor Brownback’s tax reforms will contribute to economic growth because “Kansas’ tax code is now based more on consumption than it used to be… [and] good tax reform includes broadening the tax base while lowering the rate, which appears to be Governor Brownback’s intention.”[7]

Governor Brownback highlights his reasoning for pushing for income-tax reform for his state:

We [Brownback and Lt. Gov. Jeff Colyer] did this because it was time to shake up the status quo of taxing, spending, and declining. In our federalist system, state governments are forced to compete against each other for capital, jobs, and residents.  Competition offers two options: you can either refuse to adapt to changing conditions and fall behind those who do, or you can lead the way to the future.  Kansas had to change the way it competes regionally and nationally for residents and jobs, and so far we have made great progress.[8]

Amy K. Frantz is Vice President of Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1] “Governor Brownback signs pro-growth tax legislation,” Media Release, May 22, 2012, <http://governor.ks.gov/media-room/media-releases/2012/05/22/governor-brownback-signs-pro-growth-tax-legislation> accessed October 17, 2013.

[2] Governor Sam Brownback, “Op-ed: ‘Why Kansas Had to Cut Taxes’,” Media Release, July 27, 2012, <http://governor.ks.gov/media-room/media-releases/2012/07/27/op-ed-why-kansas-had-to-cut-taxes-> accessed October 17, 2013.

[3] Deborah D. Thornton, “No Place Like Home!” Public Interest Institute INSTITUTE BRIEF, April 2013, <http://www.limitedgovernment.org/brief20-10.html> accessed October 29, 2013.

[4] Joseph Henchman and Scott Drenkard, “Kansas 2013 Tax Reform Improves on Last Year’s Efforts,” Tax Foundation, Fiscal Fact, June 19, 2013, <http://taxfoundation.org/article/kansas-2013-tax-reform-improves-last-years-efforts> accessed October 18, 2013.

[5] “Gov. Brownback signs Pro-Growth Tax Reform,” Media Release, June 13, 2013, <http://governor.ks.gov/media-room/media-releases/2013/06/13/gov.-brownback-signs-pro-growth-tax-reform> accessed October 17, 2013.

[6] Henchman and Drenkard.

[7] Ibid.

[8] Brownback, “Op-ed.”