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State legislative update

Major issues are looming in Topeka

Rep., District 70

I need your input. The Kansas House is about to vote on a matter of seismic proportions in the near future. We will soon vote on many pieces of tax legislation — none of them is likely to address the long list of exemptions from paying property or sales tax for various groups and entities.

The issue at hand is whether Kansas should eliminate corporate income tax.

Should our corporations pay income taxes to support our system of government or should they be exempt to entice them into Kansas or because they create jobs and stimulate the economy?

Should Westar Energy, Kansas community banks, Bank of America, Wells Fargo, Boeing, Cessna, and others pay no income tax? I want to hear from you, no matter your view. The Kansas Chamber of Commerce advocates its elimination, and instead the state keeps the 1 percent sales tax adopted last year on a permanent basis. The increase was designed to partially sunset in 2013. The Kansas Chamber vehemently opposed its passage.

Please don’t pick up the phone to call — read the rest of the column.

Do I believe corporate income taxes are too high? Probably. However, a businessman who owns and runs a Kansas bank and pays the tax says “no.” He believes corporate taxes are about right, considering the entire taxing system. Do I advocate some adjustment either now or after the recession? Yes, but not now — not with the budget hole we have. Do I believe the corporate tax ought to be eliminated? No.

Will a lower income tax spur growth? I spoke to a number of corporate business owners, most from this district. A couple of them reminded me that struggling corporations have little income and pay little or no tax. Cutting the tax rate or eliminating the tax is meaningless during a recession, and this is no time to consider its elimination. All of the corporate owners I spoke with disagree with the Kansas Chamber. They all believe Kansas corporations ought to pay corporate income taxes.

Other things need fixing.

During my first term in office, we discussed businesses being economic engines and we talked about creating a business-friendly tax policy and environment. Professor Art Hall, director of the University of Kansas Center for Applied Economics whose position is funded by Koch Industries, spoke to the Republican caucus on two occasions. I think he was speaking on his own behalf, not for the university.

While Hall and I are not always on the same page, his words rang loudly to me on this issue. 1. If Kansas is to foster new business, it must have a clear and consistent regulation and tax policy. 2. Get out of the way of businesses so they can do their work riding into the frontier and creating capital and jobs. 3. Most new businesses in Kansas will not be large companies lured here — the big fish are temporary and will leave when incentives run out. (Hillsboro folks, think Reynolds Aluminum!)

While some companies move from other places, most new businesses are locally grown, small businesses, entrepreneurs among us, and those who have the stomach to conceive and venture and take the risk, and policy should emphasize their needs.

The most significant point to me in Hall’s article was it doesn’t matter whether we model our tax structure after the “fair tax” concept — a super sales tax — or the traditional three-legged stool approach, the key is the state’s tax structure must not be overly burdensome. The rules are clear and the government doesn’t get in the way of business formation.

When farmers were struggling in the 1980s, did Kansas lower their income taxes? No. The system was modified which was burdensome for farmers. For whom are we proposing to eliminate the corporate income tax? The new business? The established business making money hand-over-fist because of our current policies?

The “fair tax” is sort of a super sales tax but in this column, I’m going to focus on the three-legged stool concept.

The three legs of the stool are sales tax, property tax, and income tax. Each tax tends to impact one segment of people more than another tax. When we fairly — not necessarily evenly but fairly — balance the three taxes, no one group is unduly burdened by the tax. Through the years, this has been the cornerstone of Kansas’ tax policy, and some argue it has served us well when we work to keep it balanced.

With the three-legged stool system, good governance requires the three legs stay in balance and not burdensome — I’d suggest right now they’re not balanced and are burdensome. What happens if you’re sitting on a three-legged stool and one leg is five inches shorter than the other two?

Some downsides of each tax are the sales tax causing a person with low income or low assets to pay a higher proportion of assets for taxes than a person of high income or large assets. The tax rate may be the same but the proportion of tax to assets is quite different.

A second drawback is when a person’s business is labor intensive but has little business property — for example, attorneys and accountants — would prefer a property tax to the income tax if he or she were looking solely at his or her self-interest. A farmer who needs land and machinery to run a business would likely prefer an income tax to a property tax and likely prefers sales tax since agri-related purchases currently are tax exempt.

Get the idea? In the final analysis, tax policy should be as fair as it can be made for all. The key is balance. So, should corporations pay no income tax? Why? Why not? Incidentally, the vast majority of small businesses aren’t taxed as corporations but are taxed as individual income taxpayers, like non-corporations.

In another matter, I have an error to correct. Three weeks ago, I wrote that Kansas school districts, at the urging of the legislature through new legislation, should move whatever unused fund they had on hand into contingency funds and prepare for the predicted shortfall. I should have said that many legislators urged school districts to take this action.

I was on the education committee last year and we distributed a bill to give extra authority and passed the measure to the Senate. However, it never became law. In that column, I expressed frustration with the Kansas Center for Policy for jumping on schools for doing what the legislature had encouraged. While school districts had no new authority, some districts took the advice of legislators and did move what was legally permissible under the old set of rules. Turns out, they’ll need it. Thanks to the center for asking me to clarify the issue.

To give me input, call my Topeka office at (785) 296-7636 or e-mail me at bob.brookens@house.ks.gov so my assistants can tally your comments.

Last modified March 9, 2011

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