THE WICHITA EAGLE
January 24, 2012
By Brent Wistrom
Report: Governor’s tax proposal would benefit big companies
TOPEKA — Gov. Sam Brownback’s tax reform proposal would be a big bonus to large companies and is unlikely to create new jobs, according to a new report by the Center on Budget and Policy Priorities, a nonpartisan think tank branded as liberal by many conservatives.
The report says Brownback’s proposal to eliminate non-wage income taxes for limited liability corporations, sole proprietorships and subchapter S corporations would make Kansas the first state in the country to exempt income that isn’t taxed at the corporate level and passes through to business owners.
It says that could benefit companies that hire few employees or none at all, including some with owners outside Kansas.
“Many pass-through businesses are very large, and a substantial share of the profit that would be tax-exempt under the governor’s proposal would be earned by large businesses, not small ones,” the report says. Secretary of Revenue Nick Jordan said his department used nationally recognized economic models and saw the potential for 20,000 new jobs over eight years on top of natural growth. He said the Center on Budget and Policy Priorities report isn’t based on facts.
“Go to Main Street anywhere in Kansas and ask the small business owners there if they file their business income on their personal tax forms. They will say yes,” he said via e-mail. “These are the folks the plan is focused on helping; they are everyone from our farmers and mom and pop stores trying to grow their businesses to high-tech startups and traditional manufacturing shops. They may employ one person or 100 but they form the backbone of our state’s economy.”
The center’s report also notes the plan proposed by House Republicans and says that it, too, misleads people to believe the tax exemption is geared toward small businesses. It says many businesses exempt from tax under Brownback’s proposal are used as investment vehicles, and it cites a U.S. Treasury Department study that showed 88 percent of the owners of such businesses spend less than $10,000 on payroll or contract labor.
“The major beneficiaries of such a giveaway are unlikely to be the small businesses and job creators that Governor Brownback says he is intent on helping,” the report says. “Instead, the benefits would flow in great measure to large, established businesses, some of which don’t even have employees.”
In addition to eliminating income taxes on non-wage business income for limited liability corporations and sole proprietorships, the governor’s proposal would reduce tax rates overall, eliminate some tax credits and itemized deductions, and keep the state sales tax rate at 6.3 percent.