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Kansas Governor Proposes Significant Income Tax Reform, Reducing Rate From 6.45% to 4.9%

2 min readBy: Joseph Bishop-Henchman

In his State of the State address, Kansas Governor Sam Brownback (R) outlined a major income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. overhaul:

I’m proposing a major step in overhauling our state tax code to make it fairer, flatter, and simpler. My tax plan will lower individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates for all Kansans. It brings the highest tax rate down from 6.45 percent to 4.9 percent, the second lowest in the region – and lowers the bottom tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. to 3 percent. My plan also eliminates individual state income tax on most small business income.

As we modernize our tax code and lower everyone’s rates, it is also time to level the playing field and simplify state taxes by eliminating income tax credits, deductions, and exemptions ─ while expanding assistance to low-income Kansans through programs that are more effective and accountable. I firmly believe these reforms will set the stage for strong economic growth in Kansas – and will put more money into the pockets of Kansas families and businesses. Growth that will allow us to further reduce tax rates and increase our competitiveness. Growth that will see people move to Kansas instead of leaving our state.

With that in mind, I ask the legislature to limit further growth in government expenditures to no more than 2 percent a year ─ and devote all additional revenues to reductions in state tax rates. This will get us ever closer to the pro-growth states with no state income taxes – which are among the country’s strongest economic performers.

Kansas’s current “top” income tax rate of 6.45% kicks in at $30,000 of annual income, so a lot of people pay it. Dropping it to 4.9% would definitely compare favorably to the top income tax rates of neighboring states: Nebraska (6.84%), Oklahoma (5.5%), Missouri (6%)—all except Colorado (4.63%).

The Kansas City Star learned more details: the plan is about revenue-neutral, it cancels a scheduled sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. reduction of 0.6%, the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. is doubled to $9,000 for head-of-household filers, state income taxes are removed from non-wage income like LLC income, and many separate deductions are eliminated: home mortgages, earned income, day care, adoption, historic preservation and environmental compliance.

Good tax reform means broadening the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. while lowering the rate, as that removes distortions that harm economic growth. It sounds like Brownback’s plan moves in this direction. The difficulty will be in convincing the recipients of those various special deductions to trade losing them for lower rates. On business tax climate, Kansas is currently middle of the pack, so Brownback’s instincts and approach in his proposal are correct.

More about state tax policy.