A 'trigger' for future income tax cuts could create unintended consequences, writes Chris Courtwright. (Tim Carpenter/Kansas Reflector)
Kansas tax discussions this legislative session have included a “trigger” concept — a formulaic statutory mechanism that automatically triggers future income tax rate cuts based on growth in receipts.
One frustration is that no one knows what language may emerge on the back of a cocktail napkin at 2 a.m. during the veto session to be suddenly inserted into a final, non-amendable conference committee report. Lobbyists recently have waxed eloquent about emails traded with other special-interest entities on how this mechanism could be structured in Kansas based on other states’ experiences.
Political vagaries of the moment seem to have made these mechanisms a shiny new toy for policymakers to consider so they can “control” public sector growth from the revenue side of the equation.
What follows are my own observations after having toiled in the tax policy field for 37 years through good times and bad, failed and successful experiments, and multiple interactions with people thinking they can peer into the future with perfect foreknowledge and cleverly draft catch-all policy that can be flexible enough to miraculously anticipate upcoming demands on society and the public sector.
I find it ironic that “simplicity” is one of the buzzwords bandied about by special interests pushing flat-rate tax schemes, when in the next breath they push Byzantine formulas attempting to mandate future rate buydowns. Why should we preemptively hamstring future state responses to fiscal crises or other legitimate emergencies? It isn’t as though the Great Recession, pandemic or failed tax experiment should have faded from our memories.
Although we never seem to see the language lobbyists email one another — even while we receive soothing assurances the needle will soon be perfectly threaded to address everyone’s questions and concerns — I can talk in the abstract about why formulaic mechanisms should be avoided.
Triggers are generally structured based on growth in receipts above the prior year, and they are often tied to growth above final expectations. If as of June 30, receipts for a given fiscal year come in more than had been expected at the time the final estimate was made, the law would then trigger a certification during the summer to the secretary of revenue, who would formulaically determine newly lowered income tax rates that would apply for the upcoming tax year starting Jan. 1. Allowing such triggers could enable game-playing by powerful special interests eager to use Kansas law as a pawn on their chessboard.
Triggers are generally structured based on growth in receipts above the prior year, and they are often tied to growth above final expectations. If as of June 30, receipts for a given fiscal year come in more than had been expected at the time the final estimate was made, the law would then trigger a certification during the summer to the secretary of revenue, who would formulaically determine newly lowered income tax rates that would apply for the upcoming tax year starting Jan. 1.
– Chris Courtwright
Given that a small percentage of Kansas corporate filers pay most of the liability, let’s envision one of these heavy-hitting corporations rushing in during late June some year and insisting on making an unexpectedly large “estimated” payment for which they can always end up being reimbursed the next time they file. Because revenue estimators in April would not have known this eleventh-hour stratagem would transpire, that large (and maybe temporary) payment could boost June 30 receipts above the final forecast, triggering future rate cuts for that corporation, as well as their corporate brethren and individuals. I remain mystified why we should authorize this while cheering on the “simplicity” of the legislation.
Moreover, we already have a formula in place earmarking half of all revenues coming in beyond estimates for transfer to the rainy day fund. How many cutesy formulas do we need attempting to earmark the same money before policymakers return to town the next January?
Proponents of tax cuts often argue that they stimulate economic growth and attract outside investment. But if trumpeting our tax structure to the rest of the nation is critical, aren’t we potentially losing some bang for our buck if our income tax rates are not visible statutorily? If the actual Kansas income tax rates are determined as part of some floating craps game on the Department of Revenue’s website, how would a business looking at the state from afar know that the statutory rate does not still apply?
“Simplicity” is not the word that comes to mind.
Of course, the main argument against triggers remains the extent to which they remove discretion from policymakers. Why should lawmakers be proscribed from considering anything else beyond automated income tax rate cuts? What about other income tax relief — standard deduction increases or expanding the Earned Income Tax Credit? What about sales and property tax relief? What about wise investments involving the spending side of the equation?
Consider if a formula were in place and then next summer, final FY 24 receipts came in beyond expectations. During the fall of 2024, income tax rate cuts for calendar 2025 would be automatically determined. But maybe property taxes continue to be a major issue. The newly elected 2025 Legislature would arrive in Topeka with a mandate regarding property taxes. Excess resources that had come in the previous June 30 would not be available, having already been directed to income tax relief. Legislation to undo the formula and recapture that money for property tax relief would be a political bombshell that could (correctly) be construed as an income tax increase at that point.
With triggers having become the new hobby horse of think tanks operating on behalf of special interests, the 2023 Kansas Legislature would be wise to resist and not self-aggrandizingly seek to claim credit for future tax cuts by enacting such a mechanism. (Lawmakers from 2013-17 were furious about their inability to make significant new tax cuts after the “glory” had already been seized by the 2012 Legislature.)
If the past has taught us anything, it is that no one has any sort of perfect omniscience about the future and should not pretend otherwise.
Chris Courtwright, who was a member of Gov. Laura Kelly’s Council on Tax Reform, retired in 2020 after 34 years as the Kansas Legislature’s principal economist and member of the Consensus Revenue Estimating Group. Through its opinion section, Kansas Reflector works to amplify the voices of people who are affected by public policies or excluded from public debate. Find information, including how to submit your own commentary, here.
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