As N.C. House and Senate leaders haggle over the final outline of their tax reform package, the Tax Foundation offers us this news from Kansas:

Kansas Governor Sam Brownback has signed a new tax reform bill, addressing some drawbacks of last year’s legislative efforts and resulting in an improved tax code for the state, according to a new analysis by the nonpartisan Tax Foundation.  Last year’s reform plans ultimately fell short of expectations due to flawed exemptions for so-called “pass-through” businesses as well as a lack of base broadening which created an approximate $800 million revenue gap.

Although the bill is actually revenue-positive, the combined effect of both bills remains a net tax cut. After incorporating the 2012 and 2013 changes, as well as changes in state spending, the state now faces a budget gap of between $95 million and $182 million per year, a significant reduction from last year. This year’s bill includes:

  • Lowering income tax rates even further, ultimately to 2.3 percent on the first $30,000 of income and 3.9 percent on income above that.
  • Sets the sales tax rate at 6.15 percent beginning in July 2013. At first glance, this seems like a tax cut, as the sales tax was 6.3 percent. However, the tax had been scheduled to drop to 5.7 percent in July 2013.
  • Reduces the value of itemized deductions by 30 percent this year and by 5 percent per year until 2017 when they will be reduced 50 percent permanently. The charitable deduction is an exception to this treatment and will remain fully deductible.
  • Decreases the standard deduction for married filers filing jointly ($7,500) and heads of household ($5,500), down from $9,000. The amounts are still higher than pre-2012 law ($6,000 and $4,500, respectively).
  • Restores the low-income food tax credit.
  • Ends the itemized deduction for gambling losses.

This move toward a lower tax burden is supported as good policy by a wide body of empirical literature. In a recent review of 26 peer-reviewed studies that have been written on the topic, the Tax Foundation revealed that 23 of those studies found that increasing taxes hurts economic growth. According to Tax Foundation Vice President of Legal & State Projects Joseph Henchman, “the Kansas reforms over the last two years will result in hundreds of millions of dollars in tax cuts, and returning that money to the private sector will produce long-term growth gains.”