Oklahoma and Kansas are two states looking to tackle major tax reform this year.
In Oklahoma, economist Art Laffer has teamed up with the Oklahoma Council on Public Affairs to push for pro-growth tax reform. Their plan would replace the existing income tax brackets with a flat tax rate of 2.25-percent in 2013 and reduce the rate by 0.25-percent each year after until the rate hits zero. Along with implementing a flat tax, the plan would eliminate current state credits and deductions.
Phil Kerpen and Stuart Jolly of Americans for Prosperity note in National Review Online that moving to eliminate the state income tax is a smart move:
“Over the past decade, non-income-tax states have seen 59 percent economic growth, versus just 38 percent for high-income-tax states. Job growth has been 4.7 percent in the non-income-tax states, while high-income-tax states actually lost 2.9 percent of their jobs. Population growth is the same story, up 12.3 percent in the non-income-tax states and just 3.8 percent in the high-income-tax states. Perhaps most interestingly, non-income-tax states are seeing more rapid growth in state and local tax revenue, as the high-income-tax states are undermining economic performance and, as a consequence, depressing revenues.”
The story is much the same in Kansas where Governor Sam Brownback is pushing a plan to phase out the state’s income tax as well. Brownback has cited Kansas’s overly complicated tax code that picks too many winners and losers, as well as private sector job loss and poor capital flow, as reasons for his plan.
In the initial stages of the plan, the Kansas tax system would move from three income brackets to only two income brackets with rates set at 3-perent for income under $15,000 for individuals and 4.9-percent for income at or over $15,000. Additionally, the plan would eliminate the income tax on non-wage business income. Like Oklahoma, the Kansas plan would eliminate several credits and deductions.
After the initial reforms in Kansas, Governor Brownback has proposed capping annual budget growth at 2-percent a year with excess revenues being applied to reductions in the individual and corporate income taxes – leading to an eventual phase out all-together.
Americans for Tax Reform has sent letters to both the Kansas and Oklahoma legislatures reminding them that effective tax reform does not increase taxes on net. You can read those letters here and here.
What do you think, should more states move to phase out their income tax?