Analysis: New flat tax proposal would mainly benefit state’s top 20% of earners

A new flat tax proposal would cost the state nearly $650 million and give 40% of the benefits to the state's top 20%, an independent analysis found.


State News

March 13, 2024 - 2:53 PM

Sen. Caryn Tyson, a Parker Republican who requested the bill’s introduction, called it a solution that addressed previous flat tax proposal concerns. Photo by (Sherman Smith/Kansas Reflector)

TOPEKA — A revamped flat tax plan touted by Kansas Senate lawmakers on Tuesday would cost the state nearly $650 million annually once phased in, give 40% of the benefits to the state’s top 20% and reap billionaire Charles Koch a half-million dollar windfall, according to independent analysis.

During the Senate Committee on Assessment and Taxation hearing, Republican lawmakers claimed the latest version, encapsulated as Senate Bill 539, would address Kansans’ needs. 

“It is a product of listening to people and trying to come up with the best solution,” said committee chairwoman Sen. Caryn Tyson, a Parker Republican who requested the bill’s introduction.

The state currently uses a graduated income tax rate: 3.1% for income under $15,000, 5.25% for income between $15,000 and $30,000 and 5.7% for income above $30,000. Couples filing together have those income amounts doubled.

SB 539 would change income tax rates over six years, starting with a universal income tax rate of 5.7% in 2024, and reduced by .05% each year until 2029, which would set the rate at 5.45%. Under current law, the standard state deduction for income taxes is set at $3,500 for single filers and $8,000 for married couples filing jointly. The bill would set the deduction at $4,000 for single filers in 2024 and increase the standard deduction for all taxpayers by the cost-of-living adjustment published in the Internal Revenue Code beginning in tax year 2025.

However, researchers estimate the top 20% of earners – those with average annual incomes of $315,000 – would see nearly 40% of the benefits. The Institute on Taxation and Economic Policy, a nonpartisan research organization that favors a progressive tax system, estimated the plan would cost the state nearly $650 million annually once fully implemented.

Under the proposal, a top 1% household with an average income of $1.9 million would see tax cuts of $3,861 after the plan’s full phase-in. A Kansas household making less than $55,000 a year would see $237 in benefits, according to ITEP researchers. Billionaire Charles Koch would receive an estimated annual $485,000 in tax breaks under the proposal.

The bill would also cut the standard tax rate for banks from the current 2.25% rate to 1.94% in tax year 2024, and down to 1.63% in 2025. For savings and loan associations, taxes would be reduced from the current 2.25% rate to 1.93% in 2024 and down to 1.61% in 2025. Other provisions include eliminating the state’s 2% sales tax on groceries by July 1. Currently, the tax is set to end on Jan. 1, 2025.

Rep. Francis Awerkamp, R-St. Marys, testified in support of the bill and said it would help out lower-income earners.

“What I see in this bill is a respect for some of the concerns and objections. Specifically, the concern about who receives the benefit of the other bills that failed. … If you take a look at the math on who really benefits, it is the low and middle income. They receive the majority of the tax break in this bill,” Awerkamp said.

Earlier in the legislative session, a Republican-driven effort fast-tracked the 5.25% income tax plan that would have reduced tax collections by more than $300 million per year and primarily benefited the state’s top earners.

Tyson said claims that the 5.25% plan mainly benefited the wealthy were “inaccurate,” but ITEP’s study of the 5.25% proposal found 44.5% of the income tax savings would have gone to the top 5% of wage earners. 

The top 20% would have gotten an average tax break of $828, while the bottom 80% of wage earners would have received an average annual tax break of $89 under the flat tax.

Democratic Gov. Laura Kelly vetoed the proposal in late January, characterizing it as “reckless.” 

Despite the GOP supermajority in the House and Senate, a veto override attempt failed in the House due to opposition among conservative and moderate Republicans who felt the proposal didn’t do enough for the state’s lower-income residents.