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Current Tax System:
Much like the Federal Tax Code, the current Kansas Tax Code is the result of decades of legislation. Each year the state tax code gets more complicated with modifications, additions, exemptions, and rate changes. Some taxes conflict with each other and others barely cover the cost of collection. Among other taxes, Kansas currently has an income tax on both individuals and businesses as well as a state level retail tax of 6.3%.
The Problem:
The booming economy of the last 10 years masked the inefficiency of the Kansas State Tax Code. As the economy started to struggle and State Revenues began to decline, the core problems of our tax code become obvious. The current tax code is burdensome to businesses and overpriced to individuals.
Nine states in the US have zero income tax. On average these states outperform "high tax burden" states like Kansas in areas like Job Creation and Economic Growth. Additionally, individuals on average pay a higher total amount of taxes in "high tax burden" states like Kansas, than individuals in lower tax burden states like Texas, Florida, Utah, and Tennessee.
The economy will no longer mask the fundamental problems with the Kansas Tax Code. Kansas needs to become competitive or continue to lose jobs to better performing states.
Nine states in the US have zero income tax. On average these states outperform "high tax burden" states like Kansas in areas like Job Creation and Economic Growth. Additionally, individuals on average pay a higher total amount of taxes in "high tax burden" states like Kansas, than individuals in lower tax burden states like Texas, Florida, Utah, and Tennessee.
The economy will no longer mask the fundamental problems with the Kansas Tax Code. Kansas needs to become competitive or continue to lose jobs to better performing states.
What are other States doing?
Kansas ranks 40th in the ALEC-Laffer State Economic Performance Ranking, according to the book "Rich States, Poor States". There are currently nine states that collect most of their tax revenue in the form of a consumption tax, rather than taxing income. These state on average out perform high tax burden states like Kansas.
Most alarming is the race to become competitive. Missouri has a very well organized movement to eliminate the income tax. Imagine a business owner located in Kansas City, just a few miles from the state line. They have the option of staying in Kansas and continuing to pay individual and corporate income taxes or relocating a few minutes drive and eliminating both....what would you do? Similar Tax Reform efforts are underway in Nebraska and Oklahoma.
Most alarming is the race to become competitive. Missouri has a very well organized movement to eliminate the income tax. Imagine a business owner located in Kansas City, just a few miles from the state line. They have the option of staying in Kansas and continuing to pay individual and corporate income taxes or relocating a few minutes drive and eliminating both....what would you do? Similar Tax Reform efforts are underway in Nebraska and Oklahoma.
The Plan (Triple Zero)
This plan does not modify the current tax code, it replaces it.
Plan Basics:.
Plan Basics:.
- Zero State Income Tax on Individuals: Individuals currently pay state income tax based on their annual wages. This is eliminated, no individual regardless of income will have to file or pay state income taxes.
- Zero State Income Tax on Corporations: Business currently pay state income tax on corporate earnings. This is eliminated, no business or organization will pay state level income tax regardless of corporate profits.
- Zero State Exemptions: The current tax code is full of exemptions, which create inefficiencies. For every exemption that is given, the revenue must be collected on someone else.
Exemptions:
Exemptions in the tax code can best be described as a "waiver" for a certain group of people or industry from having to comply to the established tax code. Exemptions can apply to a very select group of people like a non-profit organization or to a large industry like agriculture or financial services.
The problem is that for every exemption that is given, that "lost revenue" must be made up somewhere else. So while one group is tax-exempt, other organizations and individuals must pay a higher percentage to compensate for the original exemption.
The largest exemption in Kansas are related to "services".
Services: Most labor services are exempt in Kansas. So, an Accountant providing tax preparation is "exempt" from collecting the 6.3% sales tax that is required of a Retailer selling garden supplies. If you hire an HVAC company to replace your Furnace they will charge you sales tax on the materials (furnace, electrical breaker, plumbing, etc), but do not charge sales tax on their labor. Services are a large and stable part of the Kansas economy. The lost revenue of not taxing services is the reason the income tax is required. While they may generate the same amount of tax revenue it is far more efficient and pro-growth to collect taxes on consumption rather than on income.
The problem is that for every exemption that is given, that "lost revenue" must be made up somewhere else. So while one group is tax-exempt, other organizations and individuals must pay a higher percentage to compensate for the original exemption.
The largest exemption in Kansas are related to "services".
Services: Most labor services are exempt in Kansas. So, an Accountant providing tax preparation is "exempt" from collecting the 6.3% sales tax that is required of a Retailer selling garden supplies. If you hire an HVAC company to replace your Furnace they will charge you sales tax on the materials (furnace, electrical breaker, plumbing, etc), but do not charge sales tax on their labor. Services are a large and stable part of the Kansas economy. The lost revenue of not taxing services is the reason the income tax is required. While they may generate the same amount of tax revenue it is far more efficient and pro-growth to collect taxes on consumption rather than on income.
Where does the money come from?
By eliminating all of the current exemptions and establishing a single consumption tax of 6.3% on "new" goods and services, we are able to eliminate the income tax on both individuals and corporations.
What is taxed?
Kansas would have a single consumption tax of 6.3% on all "new" goods and services purchased at the consumption level.
"New Goods": This only applies to new goods, used goods are not subject to tax.
"Goods and Services": This applies to all good and services. This includes groceries, lawn chairs, attorney fees, dentist appointments. You will pay a single tax rate of 6.3% on any good or service that you purchase, no exemptions.
"At the consumption Level": Taxes should only be paid once, which means business to business transactions are excluded. If a plumber buys plumbing supplies to install in your house, the plumber does not pay the consumption tax on those items, because he is not consuming the product. The tax is collected at the point of consumption, which in this case would be the individual. The plumber would collect the tax at the point of sale, just as they currently do for sales tax. When an Engineering firm provides design services to a manufacturing firm to build a new facility in Kansas, they are not subject to state tax. The consumption tax is only paid at the point of consumption.
"New Goods": This only applies to new goods, used goods are not subject to tax.
"Goods and Services": This applies to all good and services. This includes groceries, lawn chairs, attorney fees, dentist appointments. You will pay a single tax rate of 6.3% on any good or service that you purchase, no exemptions.
"At the consumption Level": Taxes should only be paid once, which means business to business transactions are excluded. If a plumber buys plumbing supplies to install in your house, the plumber does not pay the consumption tax on those items, because he is not consuming the product. The tax is collected at the point of consumption, which in this case would be the individual. The plumber would collect the tax at the point of sale, just as they currently do for sales tax. When an Engineering firm provides design services to a manufacturing firm to build a new facility in Kansas, they are not subject to state tax. The consumption tax is only paid at the point of consumption.
Benefits:
The goal of this plan is to collect state revenue in the most efficient manner. Being efficient ensures individual pays the least amount of total taxes and significantly reduces the cost and effort required for business to comply with the tax code. That gives individuals more money to spend or save in the private sector and allows business to become more competitive and spend their efforts on their core business.
Does this plan negatively effect lower income individuals?
Some tax plans exempt certain items like food or medications. Because exemptions create inefficiencies, our plan provides for a "pre-bate". The "pre-bate" is a more efficient way to account for the necessities that are required by all individuals. Here is how it works:
The consumption tax of 6.3% is paid on all goods, including food items and medications. Each Kansas resident is issued a pre-bate card (similar to a debit card). At the beginning of the month, the State of Kansas will debit the pre-bate card in the amount equal to the state tax collected up to the poverty level. The amount debited is adjusted each year and would be the same for everyone regardless of income or monthly consumption. The prebate allows consumers to choose how they will spend their "necessity" amount and retains the "no exemptions" integrity of the tax plan.
The consumption tax of 6.3% is paid on all goods, including food items and medications. Each Kansas resident is issued a pre-bate card (similar to a debit card). At the beginning of the month, the State of Kansas will debit the pre-bate card in the amount equal to the state tax collected up to the poverty level. The amount debited is adjusted each year and would be the same for everyone regardless of income or monthly consumption. The prebate allows consumers to choose how they will spend their "necessity" amount and retains the "no exemptions" integrity of the tax plan.
"Triple Zero" is a simple plan to replace the current state tax code with a simple consumption tax of 6.3% on all new good and services purchased for personal consumption.
