Kansas tax cuts caused tax revenues to fall 11 percent. What's next?

The tax cuts in Kansas have been breathtaking. In 2012, at Brownback’s urging, the legislature cut individual tax rates by 25 percent and repealed the tax on sole proprietorships and other “pass-through” businesses. It also increased the standard deduction (though it eliminated some individual credits as well).

In 2013, the legislature cut taxes again. It passed a measure to gradually lower rates even more over five years. By 2018, the top rate, which was 6.45 percent in 2012, will fall to 3.9 percent. It also partially restored some of the credits it eliminated in 2012. This time, it did raise some offsetting revenue for the first few years but far less than the statutory tax cuts. The Center on Budget & Policy Priorities wrote up a nice summary of all the tax changes.

So what happened after all those tax cuts? Revenues collapsed.

From June, 2013 to June, 2014, all Kansas tax revenue plunged by 11 percent. Individual income taxes fell from $2.9 billion to $2.2 billion and all income tax collections plummeted from $3.3 billion to $2.6 billion, a drop of more than 20 percent.

A big chunk of that revenue decline likely comes from individuals redefining themselves as pass-through businesses. Last month alone the state’s individual tax payments fell by one-third from June, 2013.

Keep in mind that these are actual year-over-year declines in revenues, not shortfalls in projected revenue. And they came at a time when the national economy was recovering (albeit slowly) and most other states were enjoying strong pickups in tax collections.

….Since the first round of tax cuts, job growth in Kansas has lagged the U.S. economy. So have personal incomes. While more small businesses were formed, many of them were merely individuals taking advantage of the newly tax-free status of those firms by redefining themselves as businesses.

Read the entire article by clicking on the the following:  http://www.csmonitor.com/Business/Tax-VOX/2014/0716/Kansas-tax-cuts-caused-tax-revenues-to-fall-11-percent.-What-s-next