All Quiet on the Western Tax Front—Too Quiet


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© Jack Cashill
Published in ingramsonline.com - October 2012

Changes in Kansas tax policy suggest Missouri has its work cut out for it to retain small businesses along the border.


ith one or two notable exceptions, the grand political Poobahs of greater Kansas City have no idea of the financial bloodbath that awaits them.

While Kansas politicos prep themselves to sack Missouri coffers, their counterparts up and down the state line stay busy patting themselves on the head.

Consider, for instance, the headline of a recent news release from Kansas City, Missouri, City Hall: “Citizen Satisfaction Survey results show significant improvement.” How significant? How about an annual increase in composite satisfaction—drum roll, please—from 108 to 109.

Kansans just roll their eyes. They are eager to wipe the satisfaction off citizen faces in Kansas City and St. Joseph and Lee’s Summit before the next survey comes out—and they are ready to do it.

For years, Kansan eco-devos have been arming themselves for the fight or, as they insist on saying, “putting new tools in their toolbox.” In response, the Missourians have added a developmental tool or two of their own, but mostly they have just complained about Kansas.

No one in Missouri has taken all these tools too seriously, for one good reason: The tools that Kansas uses—like STAR Bonds or the PEAK (a.k.a. Poaching Employers Across KC) incentive program—do almost as much damage to Kansas taxpayers as they do to Missouri ones.

But that is about to change, and almost no one seems to have noticed.

In May, Kansas Gov. Sam Brownback all but threw away the toolbox. Kansas will not need it any more. He signed into law a new tax plan so fundamental that it makes all the TIFs and Super TIFS and Baby TIFs damn near irrelevant. If the revision does nothing more than keep people from saying “tools in our toolbox,” it will have succeeded, but in fact it does much more than that.

The law reduces the top individual state income-tax rate from 6.45 percent to 4.9 percent, with further reductions in each income class. More to the point, the revision will eliminate taxes on non-wage income for nearly 200,000 small businesses and farms. What this means is that owners of LLCs and Subchapter S corporations, who both live in and work in Kansas, will find that all of their income from those companies is free of state income taxes.

The top rate on income in Missouri is 6 percent, but that kicks in at just over $9,000 of income. Then too, those who work in Kansas City, Missouri, pay an additional 1 percent for the glory of working in Kansas City, Missouri. By moving home and business across the state line, Missouri business owners, partners in professional firms, and sole proprietors can save up to 7 percent of their taxable income for the rest of their careers.

If Missouri politicos have missed the story, the national left-wing media have not. ThinkProgress, for example, headlined this news, “Kansas Gov. Approves Massive Tax Cut for Rich That Even Some Republicans Opposed,” but ThinkProgress, like the lightly praised Republicans in question, missed the point. Kansas has been hemorrhaging employers for years. That will change almost immediately. Brownback estimates that these fundamental revisions will generate $2 billion in disposable income, create 23,000 jobs, and bring 35,000 new residents to Kansas.

Lobbyist Woody Cozad, spokesman for Save Missouri Jobs, calculates that in the first few years alone, the Missouri border counties will lose on the order of 4,500 well-paying jobs to Kansas. That is roughly the entire work force of the Ford Claycomo plant, and it will only get worse from there.

John Meara gets paid to track these things. He heads up the accounting firm of Meara Welch Browne. The firm has spent the past 25 years on the Country Club Plaza. Meara spent the 11 years before that Downtown. For no reason other than taxes, the firm is moving in May. It is not going far—just a mile west across state line—but far enough.

“Given all the issues,” said Meara, who lives in Kansas, “it was not even a difficult decision.” I asked Meara what he advises his clients. He has an obligation, he tells me, to share the truth, and the truth is this: “If you have the ability to move, and there is space available at a reasonable price, move.”

Historically, to exploit the tools in the toolbox, an employer had to hire development lawyers to help jump lots of hoops. This is one reason why “moderates” of either party liked the various incentive programs. Many of them are the development lawyers.

By contrast, the beauty of the Kansas tax reform is its simplicity. To move to Kansas, an employer won’t need a development lawyer. All that employer will need is a realty agent and a moving van, for home as well as work. It will pay to do both in Kansas.

Meara puts the equation in terms people can readily grasp: An eligible party who moves home and business to Kansas and has a taxable income of $125,000 has just saved enough each year to pay one kid’s in-state tuition at KU.

“Missouri has to act in the next 12 to 24 months or it will be too late,” says Meara, who is not optimistic that Missouri will respond, “even though it is a no-brainer.”

Cozad agrees. “If Missouri does not find a way to make fundamental changes,” he argues, “we will be conducting a lab experiment on tax policy that no one predicts will favor Missouri.” Adds Cozad, “the only real question is how bad will be the damage.”

Right now, Cozad admits, there is no plan to respond. His group focuses on raising awareness among local politicians in the hope that they will get their act together and take it on the road to Jefferson City.

Worst-case scenario if Missouri does not wake up? “Think West Berlin/East Berlin,” says Cozad. “And those of us east of the state line get to play East Berliners.”

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