By Dave Trabert, Kansas Policy Institute.
What a difference a year makes. Last May, Governor Brownback signed historic tax reform legislation that would reduce state income taxes by roughly $800 million in its first full year. As the legislature returns this week, the debate is about how much of the last year’s tax reform will be wiped out. Instead of reducing the cost of government to implement tax reform this year, Governor Brownback and the Senate want to make the 6.3 percent sales tax permanent and eliminate the income tax deduction for home mortgage interest; they also propose 0.5 percent reduction in the income tax on the first $15,000 of taxable income in 2014 and a reduction in all marginal rates beginning in 2017 (after a billion dollar increase in sales taxes) with revenue growth above 4 percent being used to reduce rates thereafter and eventually eliminate income taxes.
The House plan isn’t perfect but it’s better. It allows the sales tax rate to drop to 5.7 percent as promised, proportionally reduces income tax deductions, has more spending reductions and a formula that gradually eliminates the income tax altogether, using annual revenue growth above 2 percent to buy down rates.
The goal of tax reform is to reduce the overall tax burden, not shift it. Consumption taxes are better than income taxes, but taxes will still be too high (and economic growth impaired) until we deal with the real problem of excess spending. But even some self-identified fiscal conservatives don’t want to reduce spending.
Part of their resistance is that many people equate spending less with service cuts, but that doesn’t have to be the case. Per-resident spending varies greatly across all fifty states. Yet, every state has schools, highways, social programs, etc.; some simply do so more efficiently. States with an income tax spend 44 percent more per-resident than those without an income tax. States that spend less, tax less (and grow more). Done well, states can spend less and actually deliver the same or better services.
In fact, Kansas would have spent $2.9 billion less last year if spending were at the same level as the average state without an income tax.
Our “Legislator’s Guide to Delivering Better Service at a Better Price” shows legislators how to use existing cash reserves to ‘buy time’ and implement thoughtful efficiency measures to reduce costs over time. It can be done and it can be done now.
The problem with implementing income tax reductions is one of politics, not economics. As Thomas Sowell says, “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
Here’s hoping legislators make taxpayer-focused decisions based on sound economics when they return to Topeka this week.
A version of this appeared in the Wichita Eagle.