A Push for Tax Reform in Kansas?

September 13, 2006

In the midst of the election season – when many are thinking about winning elections, one state lawmaker in Kansas is thinking tax reform. From State Tax Today:

“A legislative committee is planning to take a major look at Kansas’s overall state and local tax structure and make recommendations about potential changes for the incoming Legislature.

Rep. Kenny Wilk (R), chair of the Special Committee on Assessment and Taxation, said the panel would be spending much of its time on a broad-based study of the current state and local tax structure, focusing on shifts in reliance on sales, property, and income taxes since 1990.”

While Kansas’ current tax system does not rank among the nation’s worst, there are significant opportunities for lawmakers to make the system more competitive. For instance, Kansas ranks 34th in the Tax Foundation’s 2006 State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales and gross receipts taxes; unemployment insurance taxes; and taxes on wealth, including residential and commercial property. More damaging than Kansas’ mediocre ranking is the fact that Kansas’ tax system lags behind all neighboring states (with the narrow exception of Nebraska).

Even though the economy is expanding and tax receipts are up, most of the discussion regarding recent surpluses in Kansas is directed towards additional spending instead of tax reductions. Even worse is the discussion of creating an individual income tax surtax to raise additional funds for higher education.

Other states in the region are taking a different path by reducing taxes with surplus funds and enhancing their tax climate in the process. For instance, lawmakers in Oklahoma recently passed major tax reductions that included phasing down the top individual income tax bracket from 6.25 percent to 5.25 percent. The Oklahoma legislation provides $600 million in annual tax relief and also eliminates the estate tax in 2010.

Nebraska has also taken action to reduce taxes. This spring, lawmakers approved legislation to reduce taxes by roughly $100 million annually. Furthermore, during his highly competitive primary race against Nebraska football legend, Tom Osborne, Governor Dave Heineman signaled he would seek further tax reductions if elected to a full term. Now that Governor Heineman won the primary and is a strong favorite in November, it is very probable that there will be further tax reductions from Kansas’ neighbor to the north.

It is evident from the actions of neighboring states that they are serious about making their tax systems more competitive for the 21st Century. While oftentimes necessary, playing defense by stopping tax increases is not the answer for Kansas. Lawmakers in Kansas must take a proactive approach if they wish to make Kansas’s tax system more competitive. Hopefully Rep. Wilk’s panel will provide what it takes to get the process started.

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