The ink had barely dried on the governor’s budget blueprint when State Sen. Gene Suellentrop, a Wichita Republican, proposed legislation to junk the Kansas progressive income tax with a flat rate of 4.75 percent for all taxpayers.
The flat tax comes from the musty corners of abandoned campaigns to make complicated issues seem simple and easy to fix. The state’s current system is called progressive because the rates increase as taxable income increases, in three brackets:
– 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 4.75 percent flat tax proposal came without an immediate estimate of its affect but there are clues in its rate. The poorest would pay much more, and others less – in some cases, a lot less.
For the low-income bracket, the flat tax brings 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.)
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Flat tax proposals are old scripts with worn frameworks. When he ran for president in 1996 and 2000, Steve Forbes wanted a flat 17 percent tax on personal and corporate income.(His plan exempted most “unearned income,” such as capital gains, inheritance, pensions and savings.)
Newt Gingrich, Ben Carson, Rand Paul, Rick Perry, Ted Cruz, Herman Cain are among those who have revived various flat tax proposals. Even Marco Rubio flirted with the idea. In recent years flat tax outlines come in various revisions from Washington-based think tanks (Heritage Foundation, CPAC, ALEC) and Koch policy institutes.
At a conservative rally in Wichita in October 2015, Kansas Sen. Jerry Moran advocated replacing all federal income and wealth-based taxes with a national “fair tax” on consumption. In the raw, it was a federal sales tax.
This “Fair Tax” was to abolish personal and corporate income taxes and end all capital gains, gifts, estate, alternative minimum, Social Security, Medicare and self-employment taxes. The plan also closed the IRS.
The abolished federal taxes, according to Moran, would be replaced with a 23 percent tax on goods and services. This was said to generate roughly the same revenue as the established taxes in the federal code.
Moran said the nation did not have an income tax until 1913, with passage of the 16th Amendment to the Constitution. Until then, he said, the nation had “survived” quite well. But that was before there were highways, telephones, airports, rural electricity or national reservoirs and parks, a time when our Army consisted of a cannon ball pyramid and a horseback cavalry.
The old “America surviving” ignored the later advances of science, medicine, transportation, public utilities, social welfare, education or public health, among others; progress advanced with a dedicated and visionary Congress and federal government, and with funding from taxes on income.
Analysts found that a 23 percent “Fair Tax” levy should be increased at least ten points, to 34 percent, to cover the revenue lost in abolishing the income taxes. In Lindsborg, the 9.5 percent (state and local) sales tax would have jumped to 43.5 percent. In paying no federal income taxes, imagine that 43.5 percent tax on an automobile sticker, a clothes dryer, a smart phone, an overcoat.
It came to big tax increases for the middle classes and the poor, who pay relatively little in income taxes already, against massive tax relief for the rich, who spend a small bit of their fortunes on taxable goods and services.
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The term “flat tax” offers the appeal of simplicity. In spite of reality, it may seem fairer than a “progressive” income tax. It gives weight to supply-side advocates who insist that untaxed income will trickle down as wealth is reinvested from above to benefit the hoi polloi.
If simplicity defines the flat tax, it also invites the appeal of loopholes and tampering. The discussion of any rate – 10, 17 or 23 percent – incubates talk of exemptions. A goal 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.
