Thursday, August 5

Kansas tax reform not to blame for local property tax increases

From Kansas Policy Institute.

Survey Says: State Tax Reform Not to Blame for Local Property Tax Increases

By Patrick Parkes

Ever since Kansas officially ushered in its momentous January 2013 tax reforms, local governments and media have persisted in claiming that Kansas’ state tax reforms will cause local tax rates to increase.

Kansas Flint Hills
Kansas Flint Hills
For example, at a University of Kansas gathering last year, Johnson County administrator Hannes Zacharias lamented that state tax changes put Johnson County in a pickle. “Indeed, we are at the end of the food chain, and we’re the ones who have to clean up the mess,” Zacharias said.

In order to gauge the validity of these and other related claims, we invited all 105 Kansas counties to substantiate them by participating in a survey. Seven counties responded, but not a single one cited tax reform as their reason for raising property taxes. Several, in fact, offered no explanation.

KPI President Dave Trabert offers a different perspective on the idea of a state-local taxation “food chain.” “It is taxpayers, not local governments, who are at the end of the food chain,” Trabert points out. “In fact, it’s Johnson County that has really been cleaning up on taxpayers. Johnson County increased property taxes by 132% between 1997 and 2013, while inflation was 42% and county-wide population increased by about a third. Cities in Johnson County also dramatically increased their taxes (Overland Park +162%, Olathe +153%, Leawood +147%). Local government is simply using tax reform as an excuse to continually raise taxes unnecessarily.”

While most counties declined to go on record, it was noteworthy that all eight respondents answered “Yes” to the question: “Do you believe your county made efficient and effective use of all taxpayer money in 2013?”  It would be interesting to know if the citizens of these counties would answer the same way.

There is, however, evidence that tax reform is beginning to boost local government revenues. Sales tax payments to local governments from the Kansas Department of Revenue show a 6.25 percent increase for the first four months of 2014. (Note: KDOR collects all sales tax and remits local governments’ allocation on a two-month time lag, so the 2014 payments reflect retail activity from November 2013 to February 2014.) KDOR reports no change in tax rates during the activity period. As we predicted in “Tax Reform gears Kansas for Growth,” lower state income tax rates allow individuals to keep more of their hard-earned money. This money flows through local economies in the form of new purchases, savings, and/or investments. In turn, this influx of new cash spurs new demand for products and labor (i.e. employees), which helps make up a broader tax base capable of producing higher revenues despite lower tax rates.

It will take several years to be able to assess the full effects of Kansas’ tax reform package, but one thing is already clear: there is no evidence that state tax reform is hurting local governments. Contrarily, tax reform is, as expected, providing local governments with increased sales tax revenue.