TOPEKA — New state income tax cuts, which kick in Jan. 1, will return some clarity to Kansas’ future tax-revenue streams, a Washington tax economist reports.
Not because those streams will be smaller, although they will. New revenue projections by state legislative researchers indicate tax revenues will be some $231 million less during the first year of the cuts, and about $4.5 billion less for the first five years.
Kansas’ revenue streams will flow more smoothly because of which taxes were cut, said Will McBride, an economist with the Tax Foundation, a nonpartisan Washington, D.C., research organization that supports lower taxes.
The new tax plan reduces the highest personal state income taxes Kansans pay by nearly a fourth — to 4.9 percent — and eliminates personal taxes on business income entirely for an estimated 191,000 business owners who report business income on their personal tax returns.
Such a plan makes sense when one considers all of the different kinds of income that’s taxed, said McBride, who has been studying 20 years of IRS tax records to see how different sorts of personal income fare as the economy soars and dips.
Wages and salaries are the largest and most stable sources of personal income, McBride said.
They account for an average 73 percent of the personal income taxpayers reported between 1990 and 2009, and “Kansas still gets revenue from them,” McBride said.
Other contributors to personal income — such as business or investment profits — are more volatile because they follow the economic roller coaster, he said.
“Eliminating the taxes that Kansas has on those income sources means that less tax revenue will follow business cycles,” McBride said.
Eliminating those taxes also means that Kansas will get less tax revenue in total.
Chris Courtwright, principal economist at the Kansas Legislative Research Department, put those latest estimates in a report last week to Gov. Sam Brownback and the top budget writers in the Kansas Senate and House.
Legislative Research is a nonpartisan unit of the legislature that, like the Congressional Budget Office in Washington, produces analyses and projections lawmakers factor into their decisions.
Courtwright calculates the new cuts will trim Kansas tax revenues $232.1 million in the fiscal year beginning July 1 and by a total $4.5 billion by June 30, 2018. The first year number is surer than the five-year cumulative estimate because Kansas legislation and the economy are apt to change.
“But everybody always wants to see the total number,” he said.
Brownback and other supporters of the tax cuts argue the reductions will inspire economic growth and, by Kansas Department Revenue projections, 23,000 new jobs by 2020, making up for the reduced revenues.
”We’ll have a real live experiment,” Brownback said this week in appearance on the MSNBC show “Morning Joe” to talk up his plan.
“We’re right next to some other states that haven’t lowered taxes,” Brownback said. “You’ll get a chance to see how this impacts a particular experimental area, and I think Kansas is going to do well.”
“I applaud the governor for finally being truthful with Kansans about the ‘experimental’ nature of his tax plan,” said Rochelle Chronister, a former state legislator and former Kansas Republican Party Chairwoman, and spokeswoman for a group of 55 former legislators opposed to Brownback’s plan.
“Unfortunately, this ‘experiment’ will bankrupt our state and create a $2.7 billion deficit within five years,” Chronister said.