29 January 2024 | Tax and Budget

With Another Flat Tax Plan Rejected, Other Tax Relief Options Can Shine

Jessica Herrera Russell | January 29, 2024

In only the first few weeks of the 2024 legislative session, Kansas lawmakers rushed through a $1.6 billion (over three years) tax package that included a pricey, inequitable flat tax provision. Governor Kelly vetoed the bill on January 26, 2024. 

The flat tax rate in HB 2284 (5.25%) was a tad more modest in the cost to the state than last year’s proposal (5.15%), but still would have overwhelmingly given households in the top 20% more money back percentagewise than low- and middle-income Kansans. In fact, middle-income households would have received hardly anything due to the income tax changes.

Like last year’s flat tax bill, there are several items in the package that would help many Kansans make ends meet. But tying those provisions to an upside-down flat tax plan is detrimental in the long run. When the state inevitably runs into revenue challenges at some point in the future, history has shown that lawmakers first cut state services helping Kansans in need instead of adjusting previously enacted tax cuts for the highest-income Kansans.

We cannot go back to the days of ignoring crumbling roads, underfunding our schools, and cutting services that help families get by when things get tough. With a disastrous flat tax twice rejected, it’s time to focus on tax relief that gives low- and middle-income families more money to address the basic needs of raising children.

There are several practical solutions that will financially empower Kansas families — while protecting our state budget — so Kansas has safe roads to drive on, a robust education for all Kansas kids, quality child care so kids can thrive and parents can go to work, and accessible and affordable health care when people need it.

Implement a State Child Tax Credit

Child tax credits are powerful tools that bolster families’ economic security and, as we saw when the federal child tax credit was expanded in 2021, would lower the rate of childhood poverty.

Lawmakers could implement a universal child tax credit, with amounts per child varying based on household income. In our proposal, parents would receive between $25-$600 back on their tax returns for each child under 18. This plan would also ensure every household could receive the credit, regardless of how much income tax they pay. A Kansas child tax credit would impact nearly 647,000 kids living in Kansas households.

For this policy option to be implemented in Kansas, state lawmakers would need to invest approximately $156 million annually, with more than 90% of that going to households making less than $137,000 a year (according to the Institute on Taxation and Economic Policy).

Immediately Eliminate the State Sales Tax on Groceries, Diapers, and Feminine Hygiene Products

The state sales tax on groceries is set to hit 0% on January 1, 2025, but lawmakers could hurry up the elimination while adding in diapers and feminine hygiene products. This would help Kansas families — especially those with young children — afford the basics.

According to the Kansas Department of Revenue, starting the 0% state sales tax on food on April 1, 2024, would cost the state around $94 million for the rest of this year. Adding diapers and feminine hygiene products to the categories escaping a state sales tax would cost about $7 million per year.

Increase the Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit is the only individual tax program in Kansas that helps parents defray the costs of child care. The eligibility for the credit extends to families with middle-incomes who are not eligible for other types of child care assistance.

The Senate Tax Committee will soon hold a hearing on doubling this tax credit from 25% to 50% of the federal credit amount (SB 264). The fiscal note for the bill from the Kansas Division of Budget states increasing this tax credit would give an extra $6 million back to Kansas families each year.

Make Progress on Property Tax Relief

Renters were eligible for the Homestead Property Tax Credit until 2013, when the Legislature removed them from those who could benefit. The tax credit is meant to allow those eligible to recoup some of the costs (up to $700) of their property taxes. Adding renters back into this credit would financially help those who have property tax increases passed onto them in the form of inflated rent prices.

Another property tax relief option is increasing the state’s property tax exemption to $100,000, reducing one aspect of the property tax homeowners pay. This solution was in HB 2284 (the vetoed flat tax bill) and is in the Governor’s tax plan. The Kansas Department of Revenue estimates this would cost the state between $85 million—$94 million a year.

Eliminate State Taxes on Social Security

A popular proposal among lawmakers on both sides of the aisle is eliminating all state taxes on Social Security income. Currently, Social Security is only exempt from state taxes if a taxpayer(s) has total income less than$75,000. This elimination would cost the state around $240 million a year, according to the Institute on Taxation and Economic Policy.

Increase the Standard Deduction and Personal and Dependent Exemptions

Increasing the standard deduction would overwhelmingly benefit the bottom 80% of households. The Governor’s plan to increase the standard deduction would cost around $108 million, with three-fourths of that benefiting households making less than $137,000 a year, according to the Institute on Taxation and Economic Policy.

If lawmakers found a more affordable option appealing, the provision in HB 2284 tying the standard deduction to inflation would be less costly at $13 million a year with a similar benefit to the bottom 80% of taxpayers.

Similar increases to and/or inflation indexing on the personal and dependent exemptions on the Kansas income tax return would offer similar benefits as an increase to the standard deduction.

Moving Forward

We all want our state to make investments in Kansas families, fund existing and vital programs (including schools, health care, and services for every Kansan), and protect against economic downturns. With a $2 billion+ surplus, Kansas lawmakers have many options to put money back in Kansans’ pockets. But doing so must be done practically and effectively so our state revenue can remain adequate and stable in the years to come.

By working together, lawmakers can seize this opportunity to channel precious state government resources to benefit children and families and make Kansas a state where all can thrive.

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