Kansas tax council bullish about food sales tax cut, considers implications of labor shortage

By: - November 19, 2021 4:27 pm

The Council on Tax Reform were confident Gov. Laura kelly’s plan to exempt the food sales tax would be feasible under improving economic conditions. The plan would cost $450 million in state revenue. (Screen capture of Governor Laura Kelly Youtube)

TOPEKA — A tax panel is keeping a watchful eye on state labor shortages, but a rebounding Kansas economy and improved revenue estimates have members confident the state can afford to enact legislation cutting the food sales tax.

The latest revenue estimates for Kansas elevated the forecast to $2.89 billion, an increase of $1.3 billion from the previous update in April. Gross domestic product is also up in Kansas by 19%, and consumption, which makes up two-thirds of the Kansas economy, is up 18%, said Donna Ginther, director of The Institute for Policy and Social Research at the University of Kansas.

With these improvements to the state’s bottom line, Ginther and others were confident the state could afford proposals from Gov. Laura Kelly and Attorney General Derek Schmidt that would cut or eliminate the state food sales tax. 

The Wayfair decision, coupled with the closing of the marketplace facilitators loophole, expanded our sales tax base,” Ginther said. “This provides an opportunity to potentially reduce or eliminate the most regressive tax in the state, the grocery sales tax.”

Using research from the dissertation of a former student, Ginther noted that reduction or elimination of the food sales tax resulted in up to a 40% decrease in food insecurity in some states. According to Feeding America, an estimated 1 in 8 people, including 1 in 6 children, face hunger in Kansas.

The governor’s plan to fully eliminate the tax on groceries would cost an estimated $450 million in state revenue.

Kansas’ improved financial standing also led to optimism from some members of the council that the state could afford to expand Medicaid this upcoming legislative session.

“I would say that’s a fair assumption,” said state director of the budget Adam Proffitt in response to inquiries about the ability to fund Medicaid expansion.

A Kansas Health Institute report indicates private-sector employers would save $39.6 million to $80.6 million if Kansas opted into Medicaid expansion.

While there are positive trends to be excited about, a labor shortage in Kansas will impede additional growth, Ginther said. She said an increase in retirements, difficulty accessing child care and low-paying jobs are driving this shortage.

As of 2021, about 2 million people in the U.S. have retired and will not return to the labor force, according to Deutsche Bank research. About 35,000 Kansans have retired in the last year.

Risk of exposure to COVID-19 and stronger retirement portfolios resulted in many retirement-age Kansans choosing to hang up their working boots for good, Ginther said.

In addition, many younger Kansans are choosing not to risk health and safety for low-paying jobs, Ginther said. Indications from the public administration sector suggest the state will have to pay more to attract and retain workers.

Child care workforce and accessibility issues remain in crisis across the state as well. 

In September, more than 300,000 women left the labor force because of limited access to child care, adding to the shortage. Child Care Aware of Kansas indicated that the state has lost about 300 licensed providers in the past year.

John Wilson, president of Kansas Action for Children, noted the Build Back Better bill, passed by the U.S. House earlier Friday, would fund universal preschool for 3- and 4-year-olds and institute a child care cost cap of 7% of income for parents earning up to 250% of a state’s median income. 

“It’d be interesting to see if once you can lower the cost of child care for working families in Kansas, if then we would still see pressures on our labor shortages due to pay,” Wilson said. “Maybe it would encourage the state to consider a minimum wage increase as well.”

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Noah Taborda
Noah Taborda

Noah Taborda started his journalism career in public radio at KBIA in Columbia, Missouri, covering local government and producing an episode of the podcast Show Me The State while earning his bachelor’s degree in radio broadcasting at the University of Missouri School of Journalism. Noah then made a short move to Kansas City, Missouri, to work at KCUR as an intern on the talk show Central Standard and then in the newsroom, reporting on daily news and feature stories.