17 October 2018 |

Analysis: Tax reform reduces inequality for Kansans, but low-income taxpayers still pay 1.5 times the rate paid by the richest

Oct. 17, 2018

A new study released today by the Institute on Taxation and Economic Policy and Kansas Action for Children finds that the lowest-income Kansans pay 1.5 times more in taxes as a percent of their income compared with the state’s wealthiest residents.

The study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, analyzes tax systems in all 50 states. The analysis evaluates all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes.

In 2017, Kansas lawmakers ended the failed Brownback tax experiment by passing comprehensive tax reform. Kansas revenue estimates are now increasing, and our state is on the path to recovery from failed tax policy. The new Who Pays? report makes clear that this same legislation has also led to improvements in the equity of Kansas tax policy. In the report, Kansas ranks 23rd on the Inequality Index, meaning 22 states have more regressive tax systems. However, were it not for the 2017 tax policy changes, Kansas would have ranked 13th in tax inequality instead of 23rd.

The improvement in rankings is primarily due to an increase in the share of taxes paid by the highest earners, with the top 5 percent of Kansas earners now paying more in taxes due to the 2017 legislation than they would have paid if Kansas had not passed comprehensive tax reform.

“The new ITEP reports makes clear that Kansas is moving in the right direction with the passage of Senate Bill 30 and the reversal of the debilitating Brownback tax experiment,” said KAC’s Director of Policy and Research Emily Fetsch. “We should also work to restore refundable, targeted tax credits for low-income earners to make the tax system fairer.”

Kansas’ tax system is regarded as regressive because the lower one’s income, the higher one’s effective tax rate. This is in part because Kansas, like most other states, relies more heavily on sales and excise taxes to raise revenue and less on personal income taxes, which tend to be more progressive (meaning the higher one’s income, the higher one’s effective personal income tax rate).

Anti-tax advocates across the country and in Kansas continue to push for tax policies that reduce tax rates for the wealthy and businesses. Kansans saw the effects of that push firsthand earlier this decade, as the Brownback tax plan led to nine rounds of budget cuts, three credit downgrades, and repeated sweeps from retirement and highway finds.

“Now is not the time to return to Brownback-era tax policy, but instead a time to continue to reinvest in our state and repair the years of damage caused by irresponsible tax policy,” Fetsch said.

There is a growing movement against this extremist agenda as the public recognizes continual tax cuts for the wealthy and corporations mean less money to adequately fund our children’s education, our parks and public spaces, our infrastructure and other basic services.

As the Who Pays? study shows, broad-based graduated personal income taxes are the most equitable way to raise revenue. Given that low-income people are paying 1.5 times more of their income in taxes than the richest Kansans, lawmakers should carefully weigh the distribution of their taxes, as measured by Who Pays?, when considering changes to their tax code.

There’s also a more practical reason for Kansas and all states to be concerned about regressive tax structures, according to ITEP. If the nation fails to address growing income inequality, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s overall tax rate on the wealthy), the slower a state’s revenue grows over time.

“Rising income inequality is unconscionable, and it is certainly a problem that local, state and federal lawmakers should address,” said Meg Wiehe, deputy director of ITEP and an author of the study. “Regressive state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State lawmakers have control over how their tax systems are structured. They can and should enact more equitable tax policies that raise adequate revenue in a fair, sustainable way.”

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