“Two things are certain: people must pay taxes and die.”
There are those who claim they don’t mind paying taxes, because it is an indication of prosperity, and somebody has to support all of the conveniences which taxes support.
“Even though taxes are not always fair, they are essential for survival of local, state and federal government” is their logically professional, and even moral, philosophy on the still highly controversial matter.
Now the question arises: “What should the tax mix be to fund state and local government in Kansas?”
“Right now, rural Kansas faces some difficult challenges,” according to Doug Haverkamp, Manhattan banker and graduate of the fifth class from the Kansas Agriculture Rural Leadership (KARL) Program.
Speaking briefly at the 580 WIBW Farm Profit Conference in Paxico, Haverkamp emphasized, “There are opportunities in the agriculture and energy sectors. However, there are substantial obstacles.”
With hand-out materials distributed to the group, Haverkamp explained, “Chiefly, rural Kansas must find a way to grow its economy in spite of its declining population and tax base. There’s no easy answer, and each rural community must create its own strategy.”
Therefore, the KARL Graduate Program developed a series of six workshops for timely and topical discussion of issues in land valuation and assessment for Kansas people.
“Information provided the basis for future policy discussion and decision making regarding revenue generation shifts facing governmental bodies, businesses, schools and, most importantly, property owners,” Haverkamp pointed out.
Shifts of revenue sources for local and state entities do impact everybody and everything that is funded by income, sales and property taxes.
As land values increase, there is concern about the tax implications on landowners. “With declining population in rural Kansas, and increased costs, this could likely have a major impact on farmers and the rural communities of Kansas,” Haverkamp said.
“The largest employer in 64 counties in Kansas is government, and the biggest source of income in all but 22 counties is Social Security,” Haverkamp explained.
“How will the government budget impact you and your county as demographics change? What is your role in building a better future?” Haverkamp asked.
Chart comparisons of mixes in tax funding were compiled in December, 2012, by Barry Flinchbaugh, professor in agricultural economics at Kansas State University.
From Table 1, in the “current tax mix,” property taxes, at $4.1 billion, account for 31.1 percent of revenue, with $3.7 billion, or 28 percent, from sales and use taxes; $3.2 billion, 24.2 percent, income and privilege taxes; and the remaining, $2.2 billion, 16.7 percent, from other taxes. Total tax revenues at the time of these calculations was $13.2 billion.
“If there were a spending freeze, and income taxes were gradually eliminated, the tax burden would be transferred to property taxes,” Flinchbaugh emphasized.
With a 100 percent reduction of income taxes, property tax would be increased $3.2 billion, or 78 percent, charts show.
Other levels of income tax reduction, the amount of revenues to be raised, and the increase in property tax include: 75, $2.4 billion, 58.5 percent; 50 percent, $1.6 billion, 39 percent; 25 percent income tax reduction, $800 million, 19.5 percent increase in property tax; and 10 percent, $320 million, 7.8 percent increase in property tax.
After a spending freeze, and sales taxes gradually being eliminated 100 percent, property taxes would go up 90.2 percent to raise $3.7 billion, Flinchbaugh’s figures show.
Should a 75 percent sale tax reduction be implemented, $2.8 billion would have to be raised from a 68.3 percent increase in property taxes.
Additional levels of sale tax reduction and effect on property tax: 50 percent, $1.85 billion, 45.1 percent; 25 percent sales tax reduction, $920 million, 22.4 percent; and 10 percent sale tax reduction, $370 million raised from a 9 percent hike in property taxes.
“Interesting is how property tax valuations have changed since 1940, when property taxes accounted for 63 percent of Kansas’ funding for state and local government,” Flinchbaugh said.
Sales and use taxes and motor fuel taxes each accounted for 10 percent of revenues, then, while income and privilege taxes were only 2 percent.
By 1960, property taxes accounted for 56 percent of revenues, while sale and use taxes were up to 15 percent, as motor fuel taxes declined to 8.3 percent, and income and privilege taxes were 6.7 percent.
Each decade since, the percentage of property tax funding government along with sales and income taxes have increased. But, motor fuel tax decreased from 8.8 percent in 1970, to 5.2 percent in 1980, and 4.6 percent in 1990.
Property taxes accounted for 53 percent in 1970, 39.2 percent in 1980, 32.3 percent in 1990, and 31.1 percent in 2012.
Sales and use taxes were 28 percent of revenues in 2012, while income and privilege taxes were 24.2 percent; and motor fuel tax income was the lowest in 72 years at 3.3 percent.
In a 2012 tax mix chart, Flinchbaugh showed that if there was no change in present taxation, property tax would be 31.1 percent; with sales and use, 28 percent; income and privilege, 24.2 percent; and other, 16.7 percent
If income taxes were reduced 50 percent, property taxes would account for 43.2 percent of the tax burden, with sales and use, 28 percent; income and privilege taxes, 12.1 percent; and other taxes, 16.7 percent.
Complete elimination of income taxes would make property taxes account for 55.9 percent of the tax burden, with 28 percent, from sales and use taxes; and 16.7 percent from other taxation.
“This information shared at our workshops has great implications on the economic future of rural Kansas,” Haverkamp reiterated.
“The non-profit educational corporation KARL, Inc., and related educational entities, the KARL Program and KARL Graduate Program, are apolitical in nature and structure. KARL has never nor never will take a stand on a candidate or issue,” emphasized Jack W. Lindquist, Manhattan, director of the KARL Graduate Program.
“Rather, the organization shares multiple sides and options of current issues and policy proposals under consideration. Outcome options are analyzed by participants given various scenarios.
“As roundtable discussions and presentations go, it is common for the facilitator to take the side of the devil’s advocate to temper a viewpoint or encourage the participant to consider all angles for the most effective outcomes,” Lindquist clarified.
“The KARL Graduate workshops are established to share statistical facts and to initiate dialogues to aid in revitalizing and enhancing the Kansas economy,” Haverkamp said.
“KARL is a two-year educational experience developing leadership excellence by offering intensive study, training and travel for emerging leaders in agriculture and rural communities,” Lindquist defined.
Information is available at www.karlprogram.com.