Poor families in Kansas would pay even more in taxes under a bill the state House passed Friday.
The bill would raise the sales tax rate from 6.15 percent to 6.5 percent. Since the poor spend more of their money on basic goods and services, they are likely to be affected disproportionately by the sales tax increase.
The legislation will raise taxes on all income groups, but critics say the increase is particularly onerous for the poor because it follows a series of other demands the government has made on their finances.
"It's hard to imagine that what we have right now could get worse, but this actually makes it worse," said Annie McKay, the executive director of the Kansas Center for Economic Growth, which is a research organization in Topeka.
Earlier this year, the Republican majority codified controversial restrictions on how welfare recipients can spend their money, barring them from using public benefits at swimming pools and movie theaters, among other establishments. Lawmakers also limited ATM withdrawals for welfare recipients to $25 a day, a measure critics said would make life far more difficult for the poor. Those changes followed a decision several years ago to overhaul taxes in a way that, over several years, boosted the incomes of the middle class and wealthy but reduced the incomes of poor families, by raising sales taxes and by limiting a provision that exempted food purchases from sales taxes.
This chart shows the impact of the earlier tax overhaul:
Matt Gardner, the executive director of the left-leaning Institute on Taxation and Economic Policy. said the new legislation would "double down" on those changes.
The House legislation would postpone a decrease in the income tax scheduled as part of the initial overhaul, so middle-class and wealthier families would pay more than they would if Brownback's original reforms were fully phased in. At the same time, the higher sales tax means the poor would pay more as well.
"A tax hike of this size is going to have a worrisome impact on these families," Gardner said. "It's going to push them further below the poverty line."
Under current law, the bottom fifth of earners pay 4.7 percent of their income in general sales taxes (not including specialized business and excise taxes), compared to 0.7 percent for the top 1 percent of earners, according to the institute.
For the poorest households, the increase in the sales tax would be at least partially canceled by an income tax exclusion, according to the state.
Gardner noted that the average household in the poorest group has no state income tax liability, so this provision is unlikely to help them.
"You could ask sensibly why low income families should be getting hit by this, since they are the single group that found themselves worse off under the Brownback tax cuts enacted so far," he said. "It's not an easy to enact a very large tax cut that actually hikes taxes on very low income families, but that's actually what the Brownback administration did."
The boost in sales tax is an effort to close the large budget deficit that was created by the 2012 and 2013 tax reforms. Lawmakers have haggled interminably over how to make up the deficit.
The vote ended at 4 a.m. in the House on the morning of the 113th day of the session, the longest legislative session in Kansas history. The Senate, which has already passed a similar version of the bill, and Republican Gov. Sam Brownback, who has warned of the need to cut the state deficit, are expected to approve the House legislation, although more haggling is possible.
Most states rely on sales taxes for revenue, which is one reason that all states require poorer households to pay more in taxes as a share of their incomes than wealthier households. The next chart shows average state and local tax rates across the country by family income.
Kansas has one of the most regressive tax codes, according to data from the Institute on Taxation and Economic Policy.
For the poorest one out of every five Kansans, the average tax rate was projected to be 11.1 percent of income in state and local taxes this year, which is among the highest rates for that group in the nation and far higher than what more financially secure residents of the state pay.
By comparison, the top 1 percent pay 3.6 percent of their income in state and local taxes.
Originally, Brownback and his GOP allies in the legislature reduced individual income taxes and created an exemption for the owners of small businesses. The goal of the reforms was to stimulate the economy. Brownback called it a "real live experiment" in supply-side economics, a phrase he told The Washington Post he regrets.
If Kansas's economy has benefited, the gains have not been nearly what Brownback and his supported hoped for. For the past two years, Kansas's economy has expanded more slowly the country's as whole. Tax collections have repeatedly come up short of expectations, making a mess of the projections by the state's analysts. This year, the legislature confronted a deficit of $800 million.
Brownback warned lawmakers on Thursday that if they did not approve the measure, he would be forced to drastically reduce the budgets for state agencies.
"Now is the time you've got to act," he said, according to the The Wichita Eagle. "You've just got to act."
The changes voted on Friday will fund the deficit, and the largest component is the additional increase in sales taxes, which will raise $164 million this year.
In some respects, the version of the bill passed by the House is less burdensome on the poor than a previous version approved in the Senate over the weekend. The Senate bill would have raised the sales tax slightly more, to 6.55 percent.
The Senate's version also would have repealed a rebate on the tax on food purchases. Kansas is one of the few states that imposes a sales tax on groceries, but a rebate is available for some some poor, elderly and disabled taxpayers. The Senate's version would have repealed that rebate, which stands in the House bill.
All the same, the rebate is not refundable, so it does not help the poorest households who do not owe little or no income tax at the end of the year. The average household in the bottom fifth of earners does not pay state income taxes.
Rep. Don Hineman, a Republican who voted against the bill, argued that it would hurt the state for other reasons as well. Since a large portion of Kansas's population lives near the state's boundary, the increase will mean that firms in Kansas lose business to their neighbors across state lines, especially in Missouri. "It's not good tax policy for the state," he said in an interview. "I'm sorry that it's finally come to this."
Hineman argues that in order to balance the budget in a fair way, the state has to reconsider the costly tax exemption for the owners of small businesses, such as himself.
"I feel guilty that the hired help on my farm pay taxes, and I do not," he said.
Hineman's farm is sowing grain sorghum now, and the winter wheat harvest is coming right up. He isn't happy about the bill, but he is glad that legislative business won't kept him in Topeka any longer.
"I'm glad it's over," he said. "Now I can go back home and get on the planter."
2:33 p.m.: This item has been expanded with comments from Matt Gardner of the Institute on Taxation and Economic Policy.