Brownback's Favoritism: The Inequality of Kansas Tax Structure
Kansas has relied historically on three tax sources to support Kansas government: property, retail sales and personal income. In pre-Great Recession 2008, the three sources made up 87.1 percent of total state and local taxes with property taxes at 33.6%, income taxes at 27.9% and sales taxes at 25.6%. The balance of revenue (12.9%) came from motor fuel, vehicle registration, unemployment insurance, insurance premiums, mineral severance taxes and miscellaneous other taxes. (See footnote) For years, Kansas tax policy sought balance and diversification among the three primary sources. The policy has worked to provide stability to Kansas governmental finance, to keep rates on any source lower and lessen competition from adjoining states vis-à-vis the rates for these sources.
The recent state tax policy change to eliminate personal income taxes eventually has stirred a debate over a once settled issue. Without the income tax and unobtainable, massive reductions in state and local budgets, property and sales taxes are certain to increase, a prospect that raises the issue of the regressive character of the two sources. The fairness of increasing property and sales taxes is eclipsed by the lack of fairness of exempting so-called “pass through” income from taxation altogether. The question about tax policy has become not one of how regressive is a tax, but how unequal is an income tax when some pay and some don’t. The non-taxpayers are touted as job creators who need the exempted taxes to fund business expansion. The heavier share of the total tax burden being shifted to wage-earners is never mentioned as a vital support for the Kansas economy even though that’s exactly what has happened. Equal taxation has become a deciding issue for wage and salary earners and others such as retirees who are all a strong segment of the Kansas economy.
An examination of property and sales taxes reveals that both sources are paid more equally by all income and wealth levels of society than they are necessarily regressive. Property taxes are ad valorem taxes, that is, they are based on the value of the property as determined by a professional appraisal system. Kansas has made the appraisal process as uniform as possible with an investment in technology, systems and training. If performed properly, which the state has gone to great lengths to ensure, appraisals represent the relative value of property throughout the state. Sales taxes are also based on value as determined by the retail market wherever located within the state and everyone pays the same state tax rate. The relative equality of property and sales taxes does not lessen the regressive nature of these taxes as a percent of household income, however it does establish their fairness as a source of taxes.
Wealthy, high-income persons are apt to reside in the more up-scale, high-value property. Poor, low-income persons conversely tend to live in sub-standard, low-cost property. Between the two extremes, the value of a property is usually commensurate with the income of the occupant. Thus, the amount of property tax paid, whether directly or indirectly through rent to a landlord who pays the tax directly, is equalized proportionally according to property value. The items purchased by people tend to reflect their ability to pay. Wealthy persons tend to purchase costly, luxury goods. Low-income persons typically purchase lower cost, standard goods. Thus, the amount of sales tax paid is equalized proportionally according to income. Although exact equality is not achieved in both instances, the result is more or less equality of taxation.
A condition of equality is obviously not the case with the income tax when some pay and some do not pay. Regardless of the asserted economic benefits of exempting “job creators”, who are under no requirement to produce jobs to receive the exemption and who continue to receive the same state and local government services and facilities as do taxpayers, the tax favoritism policy is manifestly unfair and discriminatory. Equal taxation is all fair-minded people desire, not the unproven economic development schemes offered by Governor Brownback. Kansans expect everyone to pay their equal share of the taxes necessary to pay for state and local government services and facilities.
Footnote: Flentje, H. Edward and Aistrup, Joseph A., Kansas Politics and Government, The Clash of Political Cultures, University of Nebraska Press, Lincoln and London, 2010, Page 171.