Falling flat

The Legislature is at it again, slogging on about a flat tax ‒ that is, a single rate for Kansas income taxes. (How “flat” became attached to this old idea is anyone’s guess, but it seems fitting.)
Late last month the state senate approved a single 4.75 percent tax to replace the state’s three-bracket order. The House is massaging the plan.
Our current system is called progressive because rates increase as taxable income increases, in three tiers:
– 3.1% for taxable income of less than $15,000 ($30,000 married filing jointly);
– 5.25% for taxable income over $15,000 but less than $30,000 ($60,000 jointly);
– 5.7% for taxable income above $30,000 ($60,000 jointly).
The plan in Senate Bill 169, applies the flat rate to single-payer taxable incomes more than $5,225 and couples’ incomes above $10,450.
Senate and House Republicans, dominant in both chambers, like the idea. They say the proposal will reduce taxes for most Kansans.
Skeptics, including a handful of Republicans, say the single rate gives the wealthiest Kansans thousands of dollars in tax relief with low-income citizens left to save a few bucks here and there.
For the low-income bracket, the proposed flat tax is a 53 percent rate increase (from 3.1 percent to 4.75). The middle brackets have a 9.5 percent rate cut, from 5.25 to 4.75. For the high brackets, a 17 percent rate cut (from 5.7 to 4.75).
The Senate bill mirrors legislation offered a year ago by State Sen. Gene Suellentrop, a Wichita Republican who wanted to junk the progressive tax with a flat rate of 4.75 percent. The plan was left to simmer.
Flat tax proposals are nothing new, especially at the federal level. When he ran for president in 1996 and 2000, Steve Forbes wanted a flat 17 percent tax on personal and corporate income.
Newt Gingrich, Ben Carson, Rand Paul, Rick Perry, Ted Cruz, Herman Cain are among those who have revived various flat tax proposals. Marco Rubio flirted with the idea. In 2015, Jerry Moran campaigned for a federal sales tax to replace the income tax. Stiff resistance continued in Washington; the flat tax lobbies have turned to the states.
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Any change in tax structure invites the matter of cost. Flat tax proponents say their plan in Kansas would cost the state roughly $568 million over its first full fiscal year. A different estimate, from the Washington’s Institute on Taxation and Economic Policy: $764 million.
There are other offshoots ‒ for one, more pressure on local taxes. The legislature for two decades has suspended a law ordering the transfer of state revenue to cities and counties for property tax relief. Lawmakers have skirted the obligation and used the money to pay for other things ‒ or, during the Brownback years, cover their deficit spending.
Gov. Laura Kelly’s budget surplus this year bumps $2 billion, an embarrassment of riches due mostly to federal covid relief. The governor wants to put away $500 million. State treasurer Steve Johnson recommends stashing $1 billion; you never know what will happen, he says. Both are smart inclinations.
Republican legislators see a pot of money and want to spend a billion or more on income tax cuts ‒ a windfall for the haves and have-mores; small beans for the have-nots.
Local tax relief is left to the winds.
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The flat tax brings big levies for the middle classes and the poor, who pay relatively little in income taxes already, and massive relief for the rich, who spend a tiny bit on taxable goods and services.
Flat tax proponents envision a two-tier economy from the dark Brownback years ‒ one for the upper brackets and leftovers for the rest.
The term “flat tax” offers the appeal of simplicity. In spite of reality, it may seem fairer than a “progressive” income tax. It sustains supply-siders and Brownback acolytes who insist that untaxed income will be ladled from above, wealth trickling down to benefit the hoi polloi.
If simplicity defines the flat tax, it also invites the appeal of loopholes and tampering. The discussion will incubate talk of exemptions. The premise of equity is nibbled apart with plans for avoidance. The simple edges toward the complex. Stock buybacks, hedge funds, derivatives, mortgage-backed securities and other schemes will creep into the conversation. What is fair becomes what is advantageous, especially for the haves who want to have more.