Brownback asks for a new state tax structure

opinions

January 19, 2013 - 12:00 AM

Gov. Sam Brownback dealt with the looming state budget deficit with two proposals in his budget message. First, he would keep the state sales tax at 6.3 percent rather than let it drop by almost a penny in July as the law now provides. Second, he would eliminate the tax deduction for mortgage interest. The two steps would create $541 million in revenues that would more than cover the $267 million shortfall created by last year’s income tax cuts.
If both initiatives are passed by the Legislature, it would then be possible to pay for still more reductions in the income tax.
That’s a big if.
The penny increase in the sales tax was passed in 2010 as a temporary measure to deal with shortfalls created by the recession. It passed only because of the 2013 sunset provision. Many legislators who voted for it consider the sunset provision to be a promise to the people and will not vote to retain it.
Moderates, if there are any left, will also object to substituting sales tax income for income tax revenues. The sales tax is regressive. It hits the poor hardest. It shouldn’t become the primary source of income for the state. Income taxes are progressive, which is to say that they require more from the wealthy than from the poor. A balanced tax structure should include a healthy chunk of income tax revenue.
Democrats and some Republicans will accept this reasoning and oppose keeping the sales tax high.
Eliminating the tax deduction for mortgage interest will be opposed mightily by Kansas Realtors, who believe doing so would throw a damper on house sales, and by home owners who are taking advantage of the deduction and have its value calculated into their family budget. There will be some who will sell their homes or default on their mortgages if the deduction goes away.
But eliminating the deduction can’t be criticized as regressive. Those with the biggest mortgages would be hit hardest. The deduction favors the rich even though it also helps those with more modest incomes.

WHAT BROWNBACK is proposing would change the nature of the state’s tax structure drastically. For generations Kansas legislatures and governors have financed state government with the three major taxes: property, sales and income — the three-legged tax stool. Of the three, businesses of all sizes consider the property tax the most onerous because it remains the same or rises regardless of profits made or the state of the economy.
Businesses tend to favor the sales tax over the income tax because of exemptions they have been provided by tax laws. Those who advocate for the vast majority of the citizenry favor the income tax because it benefits low- and middle-income families.
Brownback proposes to eliminate the income tax and depend entirely on the property tax and sales tax to fund Kansas education and the rest of state government. He believes doing so will stimulate the state’s economy to such an extent that state revenues would increase more than enough to replace the lost income tax revenues.
Kansas may become a laboratory which tests this unproved theory.

— Emerson Lynn, jr.

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