Finally, the Kansas State Legislature has a tax proposal worth considering! Senator Dick Kelsey, a Republican from Goddard, has proposed a Comprehensive Tax Plan.
Finally, the Kansas State Legislature has a tax proposal worth considering! Senator Dick Kelsey, a Republican from Goddard, has proposed a Comprehensive Tax Plan. His bill would abolish the sales tax on groceries, eliminate the corporate income tax, and reduce individual income tax rates. To make up for these lost state revenues, Senator Kelsey would apply the sales tax to most the services that are currently exempt (e.g. accounting, plumbing, electrical, haircuts, and taxis), and remove most sales tax exemptions for state and local governments, schools, and charitable agencies. Health care services and legal fees would still be exempt, but a sales tax would apply to energy bills. According to the Kansas Legislative Research Services, Senator Kelsey’s plan would lower the sales tax from 6.3 percent to 5.3 percent and still generate the same amount of revenue that the state government receives from the existing tax structure.
So, why should other state legislators consider Senator Kelsey’s plan? First, the service sector economy represents 55 percent of Kansas’ economy, compared to less than 40 percent in the 1930s when the sales tax was instituted. As the service sector’s appetite for government services and infrastructure has grown over the years, the tax burden to support this infrastructure has fallen unfairly on downtown merchants, who have seen their sales taxes increase from about 3 percent to 6.3 percent over the past 25 years. There is something unfair about increasing the sales tax on retail goods when sales in the service sector go untaxed.
Second, expanding sales tax to services eliminates one of the most regressive taxes we have in Kansas, the sales tax on groceries. This insidious tax disproportionately hits the working poor, retired people on fixed incomes, and young families, all of whom spend a much greater proportion of their disposable incomes on groceries than most of us. By contrast, a sales tax on services is fairer, having about the same relative impact across income brackets.
Senator Kelsey deserves much credit; nonetheless, there are parts of his proposal that he may want to consider revising. In particular, his proposal hits hard state and local governments, school districts, and charities, making them pay sales taxes when previously they paid none.
Even though these taxing units will generate more than $400 million for the state’s bottom line, as a matter of public policy, it’s generally not wise for governments to tax other governments. In many instances, this forces the lower level governments to pass the buck onto local taxpayers to foot the tab. This is a little like rearranging the deckchairs on the Titanic.
Senator Kelsey though suggests that expanding the sales tax to the service sector will enable these local governments to recoup the sales taxes they will pay to the state. If so, then perhaps this is a fair tradeoff. If not, Senator Kelsey’s proposal should be amended. Much would still accomplished if an amended law would focus on lowering the sales tax rate and repealing the sales tax on groceries and the corporate income tax.
At this stage, Senator Kelsey is unsure of the fate of his proposal. His bill has been introduced in both the state senate and state house. The senate plans to hold hearings in two to three weeks. However, Governor Brownback’s administration has not endorsed his bill and without the governor’s endorsement, the chances of it passing are significantly reduced. Let us hope that Governor Brownback throws his weight behind even an amended version of this bill because it is the time to adapt our 1930s sales tax system to the realities of 2011.