To the editor:
The healthy debate over tax relief on these pages is not one of right or wrong, but focus. The focus of a flat income tax is on reducing everyone’s tax burden and improving the state’s stagnant economy. Opposition to a flat tax expressed here seems driven by denying income tax relief to individuals making more than $30,000 and families with incomes above $60,000.
It’s possible to just reduce income taxes on those with the lowest income, but that approach sacrifices economic benefits to everyone. The flat tax proposal lowers the burden on all taxpayers and also stimulates the economy. People who earn more pay the vast majority of income taxes, so limiting the tax cut to lower income levels has less of stimulative affect and leaves more money for the state to spend.
That is also the motivation behind Governor Kelly’s preference for a one-time rebate rather than ongoing tax relief – it leaves more money to spend in an already bloated budget.
In 2021, Kansas spent $4,932 per resident. That is 60% more than the ten states with the lowest state and local tax burdens. Those states don’t tax less because they have good weather and oil reserves; it’s because they spend less. The more a state chooses to spend to provide basic services, the more it must tax you.
That’s also the secret behind states that don’t have an income tax. New Hampshire ($2,810 per resident), South Dakota ($3,542), Tennessee ($3,042) and Florida ($2,536) don’t need an income tax because spend less per resident.
States with lower tax burdens also have stronger economies. The ten lowest-burden states have 42% private job growth since 1998 versus 27% for the ten highest-burden states and just 13% for Kansas. Some people try to dismiss Kansas’ poor performance by noting that some states are worse off, but people shouldn’t be denied a better economy in order to punish people for making more money.
Income tax cuts provide the most economic benefits
Income tax relief provides much more economic stimulus that sales or property tax reductions. Corporate taxes are the most economically harmful because they reduce the incentive for businesses to invest, built, and expand. Personal income taxes (which also apply to most small businesses from which income is passed through to individual owners) are the second-most distortive form of taxation.
Our recent paper in collaboration with the Economic Research Center at The Buckeye Institute, entitled Reforming Kansas Tax Policy, demonstrates the comparative benefit of income tax relief.
A $500 million corporate income tax cut is estimated to cause a GDP increase of $550 million and a $360 million jump in business investment (both in 2012 dollars) in the first year of implementation.
The same annual reduction in personal income taxes generates $430 million extra in economic growth and $240 million more business investment, whereas a one-time rebate produces much less ($270 million and $140 million, respectively.)
A $500 million sales tax reduction produces even less than a one-time rebate ($160 million and $50 million, respectively.)
We believe the focus should be on doing the most good for all taxpayers, and the data clearly shows Kansans will derive much more benefit with major relief by going to a flat income tax.
Dave Trabert
Kansas Policy Institute
Wichita
