Budget Shortfall: Who's to Blame -- Part 3

Yes, Sam Brownback gets some of the blame, but probably not for the reasons most liberals think.

The liberals think Brownback hasn't taxed enough. As usual, they're mostly incorrect.

Brownback's tax policy hasn't been a failure, but it hasn't been a raging victory either. Revenues have failed to meet projections repeatedly. It's worth noting, however, that in February, tax receipts beat estimates by $22 million. It still wasn't enough, and Kanas is $79 million shorter than anticipated for the fiscal year. Personal income tax collections are down $114 million compared to the same period last year. 

Sigh.

This is where things get really, really sticky. A few years ago, legislators, under the Governor's leadership, opted on a plan to begin reducing state income tax. The goal then was a gentle slide to zero. It's beginning to look a little bit like a crash landing.

Meanwhile, Kansas would begin funding government using consumption taxes. I loved the idea then, and I still love it now. (I'll explain why later.) Anyway, state officials estimated, when the eliminated income taxes for LLCs, that it would spur jobs, and that approximately 191,000 Kansans would be eligible and use the tax break. Instead, in 2013, 330,000 self-employed individuals -- think lawyers, doctors, farmers, accountants -- became LLCs and didn't pay income taxes.

Kansas wasn't ready for that. And many legislators say that was never the intent of the law. The law was designed to assist small businesses with employees -- not random individuals who changed their tax filing status. Lt. Gov. Jeff Colyer admitted as much at a forum last week. He called it a "loophole." Ugh.

More and more people are likely to begin taking advantage of this "loophole," as their accountants figure out that they can become LLCs and avoid income taxes altogether. And that would be just fine and dandy if legislators and the Governor could find the political will to make cuts where they're most needed -- public education. (I realize it's a pipe dream.)

I have very mixed feelings about fixing the so-called loophole. If the ultimate goal is zero income tax, then keeping the loophole is acknowledging that we're all headed in that direction anyway. Fixing it essentially means we may have changed our minds about the path to zero. 

The path to zero plan now requires certain revenue goals be met before legislators continue down the path. Fixing the loophole likely means we move faster to the ultimate goal. But can we count on legislators to make good on their word and continue moving that needle? I am not so sure. Plus, we can't count on the legislature retaining the people who made the original quasi-promise.

I prefer a consumption based tax model. Taxing income seems punitive to earners. But to get to that model, Kansas has to either curb spending or grow like crazy. Ideally, a mix of both. In the meantime, we have an unintended consequence -- individuals becoming LLCs to avoid paying income tax. 

It's also quite baffling that Brownback wants to move to a consumption-based tax model, but he is insisting on giving away the revenues. See Brownback's baffling and revolting proposal to veto a part of the (now busted) budget so he can offer STAR bonds to his friends in KCK. STAR bonds, you'll recall, allow developers to keep sales taxes.

I don't have the answer the full answer to the budget crunch where Kansas now finds itself, but I know the solution requires a level of leadership and public relations prowess that Brownback appears to lack.