Tax Policy Should Be Focused on Rate, Not Stool ‘Balance’, Says Economist

The so-called three-legged stool of Kansas tax policy doesn’t work mathematically, according to an economist with the Sandlian Center for Entrepreneurial Government at the Kansas Policy Institute.

“It’s a belief that state government should be funded by an equal share of income, sales and property taxes,” said Michael Austin. “Those are the three legs. However, what I have come to find out is that the three-legged stool analogy is a really good example of why a sound bite isn’t a good substitute for tax policy. It has created unstable budgets and actually has no basis in academic literature.”

The problem is that income and sales taxes go up and down together.

“What you actually find is during large economic downswings, like during recessions, sales taxes actually move much smaller than income taxes,” said Austin. “I give the example of the Great Recession, sales tax fell $100 million, while income taxes fell $700 million. In reality, if you want optimal tax policy, it’s not about having both. It’s actually about having a tax revenue that moves the least during economic downswings. That has to mean a less reliance on the income tax.”

Austin advocates for a broad base and a lower rate. He says the Governor’s Tax Council is getting it partially right.

“It seems that they really like the first part, the part where you broaden the base and we’re not hearing much on the second, which is lowering the rate,” said Austin. “They have voted to recommend Kansas government taxing digital products, that of course are online goods, like particular subscriptions. They asked for the Kansas government to tax Kansans buying from individual sellers on Amazon and they increased ways that local governments can increase your property taxes without your permission. None of those base-broadening moves came with a tax rate reduction.”

Austin sees the Tax Council as setting the stage for income tax hikes by the 2021 legislative session.