PRESS RELEASE: Study suggests eliminating income tax a mistake

Kansas Economic Progress Council Executive Director Bernie Koch said today a study released last week by the Council On State Taxation (COST) should serve as a warning to Kansas legislators who want to eliminate the Kansas individual income tax.

The study, prepared by Ernst & Young LLP, cautions legislators about examining just a single tax when attempting to be competitive in attracting new investments.

Kansas ranks 48th among states in competitive tax burden on new investments. Some legislators have pointed to the ranking as an indication that Kansas needs to pass income tax phase-out legislation already approved by the Kansas House of Representatives.

However, the study says:

The results also clearly show that legislators need to examine the entire system of state and local business taxes, not just a single tax, in evaluating their state’s tax competitiveness. In fact, the results suggest that legislators have not paid enough attention to the role of “sales” in understanding tax burdens imposed on business investments and on-going operations.”

“Although Kansas did not rank well in this study,” said Koch, “most states without an income tax did not rank high. A few are in the top ten, but many of the states without an individual income tax are ranked in the middle or the bottom of this study.”

The study shows New Hampshire and Wyoming are the only non-income tax states in the top ten. Tennessee is in the bottom ten. Of states with no individual income tax, here are their rankings in the COST study:

New Hampshire – #7
Wyoming – #9
South Dakota – #13
Texas – #20
Alaska – #25
Florida – #27
Nevada – #33
Washington – #40
Tennessee – #45

“Whether or not a state has an income tax seems to have no bearing on these rankings,” said Koch. “In fact, some states with high individual income taxes did very well in this study.”

Maine has an 8.5% top income tax rate and ranks first. Oregon has an 11% top rate and is ranked second. Also in the top ten are Wisconsin (7.75%), Delaware (6.95%) and Minnesota (7.85%).

Kansas top individual income tax rate is 6.45%.

Koch said, “The Kansas Economic Progress Council believes there can be a positive impact on the economy by strategically lowering taxes that affect business. We believe Kansas needs to study tax structure changes very carefully before moving forward.

The entire study is available online at the Council On State Taxation web site, www.cost.org.

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