Following is an editorial column written by Scott Hodge of the Tax Foundation that appeared in the July 19 Wichita Eagle and recently in the Kansas City Star.

Dear Editor:

The Kansas Legislature may have figured out a way to raise more money in the special session just ended. But larger questions remain on whether and how to address an order by the Kansas Supreme Court for even more funding for state schools in the future.

Raising taxes will undoubtedly be suggested again, but before that idea takes root, Kansas lawmakers need to consider that their already poor business tax climate could get even worse. And the loser will be the state's economy and jobs.

Kansas's state-local tax burden is already 15th highest nationally. Among neighboring states, only Nebraska (ranked 8th) pays a higher share of state income for government. Oklahoma, Colorado, and Missouri all have much lower taxes - they're ranked 40th, 37th, and 41st respectively. This does not bode well for Kansas's regional competitiveness, particularly since Oklahoma recently passed a major package of tax cuts.

Kansas takes a comparatively big tax bite out of its taxpayers. In many cases, the structure of a tax system can be just as important for its business climate as the size of the tax burden. The Tax Foundation's State Business Tax Climate Index ranks Kansas 32nd among other states overall, which is a poor score. Regionally, only Nebraska (35th) ranked worse. Colorado (8th), Missouri (11th), and Oklahoma (14th) all have excellent business tax climates.

Much has been written about jobs being outsourced to India and China, but most jobs that leave Kansas are more likely to end up in places like Indiana rather than India. Simply put, state taxes matter to business. Every tax law change in one state alters its competitive position in relation to other states, and exerts competitive pressure on other states.

The best way for Kansas to improve its business tax climate and increase its jobs base is to rescind one of the three major taxes: individual income, corporate income, or sales. Nine states don't tax wages; five states make do without a corporate income tax, and five states have no sales tax. These states have benefited when compared to Kansas.

Short of eliminating one of these taxes, Kansas needs to make its income taxes more competitive. On the individual side, cutting the top rate from 6.45% to 6% would help, and on the business side, the top rate of 7.35% is unusually high. Such improvements would of course have revenue impacts, but Kansas needs a tax cut of some kind if it is to compete with its low-tax neighbors. Politically, it is always tempting to offer revenue-neutral tax reform so that legislators' pet spending programs aren't threatened. Unfortunately, in the process of making the "minor adjustments" that force a tax reform plan into the revenue-neutral mold, tax-writers can quite easily complicate the law to the point that most of the potential benefit is lost.

Competition between states is increasing and states with poor business tax climates will suffer. With a few changes aimed at improving the tax code Kansas lawmakers can move Kansas towards becoming the best state in America to do business and create a climate conducive to jobs growth.

Scott A. Hodge
President
Tax Foundation
2001 L Street NW, Suite 1050
Washington, DC 20036
(202) 464-6200