Category: Want More

Cost of LLC Tax Break

Is it true that making small businesses pay income tax would allow a lot more spending on education, highways and other services?

The Department of Revenue says reinstating the tax on pass-through income and their loss carryforward capability would generate between $195 million and $200 million.  But as explained here that would only help get the state’s ending balance up to the statutorily-required level for at least two years, so there would be nothing left to pay for additional spending.

Federal Employment Mandate?

Does receipt of federal funding for special education, Title 1 or food service come with a stipulation requiring school districts to hire more employees?

According to Dale Dennis, Deputy KSDE Commissioner for Finance, school districts receiving those federal funds are not required to hire employees, including any specific number or type of employee, to provide those services.  Most school districts use federal funding to hire employees but they are not required to do so.

3-Legged Stool

I’ve been told that a ‘3-legged stool’ (income tax, sales tax and property tax) is the best way to fund government.  It seems like cutting income tax creates a wobbly stool.

Actually, the data shows that government is far better off relying on sales tax and property tax because of the volatility in income tax.  Over the two years following the 2008 recession, income tax collections (individuals, corporations and financial institutions) 3 legged stooldropped 20.9% but retail sales and compensating use tax only declined by 5.1% and assessed valuation dipped by just 5.0%.  Precipitous decline in income tax collections were the primary cause of General Fund spending being cut by $834 million between 2008 and 2010; the impact on services would have been much less severe if primarily funded by sales and property taxes.

LLC Job Creation

I thought LLCs were supposed to create thousands of new jobs in exchange for their tax break.  What’s up with that?

First of all, there were 44,000 private sector jobs created in the first three years of tax reform (Bureau of Labor Statistics, average annual employment 2012 vs. 2015), and that number is net of job losses in oil & gas, aerospace and Sprint layoffs, all of which were unrelated to tax policy.  But the notion than LLCs were supposed to create all the new jobs is a myth at best.  Employers add staff to meet higher demand for their products and services, and that increased demand would primarily come from the tax breaks given to individuals.

The Department of Revenue shows that 29% of tax reductions are attributable exemptions on LLC pass-through income; the other 71% went to individuals, with marginal tax rates being 30% to 40% lower than in 2012.   Some of that tax savings is spent in the local economy, which increases demand and eventually leads to more job creation.  People spend their money wherever they choose; they don’t say ‘let’s go spend our money at an LLC!

LLC Tax Break

IF LLCs weren’t supposed to be the job creation engine, why give them a tax break?

Research conducted at the KU School of Business, Center for Applied Economics shows that, if not for new business startups, Kansas would only have had two years of private sector job growth between 1977 and 2013.  New startups include LLC-type businesses as well as regular corporations so it’s not possible to differentiate, but knowing that small businesses account for more than 70% of private sector employment, allowing new small businesses to retain more working capital incentivizes entrepreneurs.

Classroom Funding

My school district says the Legislature isn’t providing enough money for the classroom.  How much is provided for classroom instruction?

There is no official category of ‘classroom funding’ under the block grant system or the old funding formula. The Legislature doesn’t decide how funds are to be allocated funds between classroom, administration, transportation or other cost centers.  There is a recommendation in state statute K.S.A. 72-64c01(a) that suggests 65% of all funding be spent on instruction or in the classroom, but spending decisions, including teacher pay, are all made by local school boards.  Some districts choose to devote less than 50 percent of spending to Instruction, for example, while others allocate 65 percent or more to Instruction.  Some funding is reimbursement of school spending (e.g., special education and bond & interest payment for eligible districts) but districts have considerable discretion over most funding sources; even capital aid can be used for some operating purposes.   Each district’s allocation to Instruction and other cost centers can be seen here.

School Accounting Change

Is it true that school funding only appears to be setting new records because of accounting changes?

No, that’s not true.  Emails from the Department of Education say no accounting changes for KPERS, Special Education, property taxes or anything else have affected total reported funding for more than ten years.

Legislative Studies on School Funding

Didn’t the Legislature’s own audit say that schools are underfunded?

No.  It’s been said that the 2006 Legislative Post Audit report said schools were underfunded but the report very clearly says that is not true.   LPA said the goal of that report was “…to make decisions and assumptions in both cost studies that were reasonable, credible, and defensible. Because K-12 education funding levels ultimately will depend on the Legislature’s policy choices, we designed the input-based cost study to allow different “what if” scenarios.”  They also said, “In other words, it’s important to remember that these cost studies are intended to help the Legislature decide appropriate funding levels for K-12 public education. They aren’t intended to dictate any specific funding level, and shouldn’t be viewed that way.”

The Augenblick & Myers 2001 cost study suggested that schools were underfunded, and while the Montoy courts relied on that study, the Supreme Court essentially threw out that report in Gannon, saying that cost studies “…are more akin to estimates than the certainties…” envisioned by the District Court.  Supreme Court Justice Caleb Stegall (then writing for Kansas Policy Institute) discovered in 2009 that A&M admittedly deviated from their own methodology by ignoring efficient use of taxpayer money, which produced inflated cost estimates.

Medicaid Expansion

Is it true that over $1 billion of our tax dollars went to other states because Kansas didn’t expand Medicaid?

No.  That would only be true if the federal government set a pool of money aside for expansion and divided it among participating states, but Congress didn’t do that.  No ‘extra’ money went to states that expanded because no specific amount of money was set aside to be divided among participants.  And since the federal budget is running trillions of dollars of deficits, more Medicaid expansion would have required more borrowing and added to the national debt.

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