Investment adviser Brad Stratton didn’t pay Kansas any income taxes last year. He doesn’t feel good about that.
Stratton, who runs Overland Park Wealth Management LLC in Overland Park, is among hundreds of thousands of taxpayers who’ve been exempt from the state levy since 2012 because they’re considered small businesses. As a group, they’re contributing to a budget crisis Kansas can’t seem to escape.
Officials estimated 191,000 taxpayers would be eligible for the break, which the administration of Republican Governor Sam Brownback designed to spur job creation. Instead, in 2013, more than 330,000 self-employed filers -- lawyers, accountants, architects, even farmers -- took advantage of it, according to the Kansas Revenue Department.
“When people figured out they could create a business and filter their income through it and avoid paying taxes, who isn’t going to do that?” said state Representative Mark Hutton, a Republican from Wichita. "This is only going to get worse."
Plugging Holes
As lawmakers get down to business in Topeka this month, the effectiveness of Kansas’s tax regime, which was re-engineered by Brownback as part of his bid to make Kansas a Tea Party showcase, remains a sore point. Budget officials forecast a shortfall of as much as $190 million, starting July 1.
Since 2013, urgent attempts to plug budget holes -- increasing the sales tax, cutting education support, borrowing for pensions and raiding a fund used to maintain highways -- have focused attention on an unanticipated effect of eliminating the small-business levy and installing other breaks: continuing deficits.
Brownback, who has repeatedly signaled he won’t support repealing or modifying his tax cuts, didn’t mention the budget forecast in his Jan. 12 State of the State message.
“Working together, we’ve created an economic environment that has seen Kansas gain more than 78,000 private-sector jobs," the governor told a joint session of the legislature last week.
Surplus to Shortfall