Kansas Gov. Brownback Proposes to Eliminate State Charitable Deduction

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January 13, 2012; Source: Kansas City Star | Kansas Gov. Sam Brownback (R) has proposed a 2012–2013 budget—partly designed by Arthur Laffer, the Reagan-era supply-side economist of “Laffer Curve” fame—that pitches some radical changes in the structure of taxes in Kansas. It would eliminate the state’s mortgage interest deduction, the earned income tax credit, taxes on approximately 191,000 sole proprietor businesses, and the charitable deduction.

Brownback’s tax proposals for Kansans look like a cross between President Obama’s attempt to save government revenues by chopping a little out of the mortgage interest deduction and the charitable deduction and Texas Gov. Rick Perry’s 20 percent flat tax proposal. Though state taxes in Kansas are pretty minuscule, the Brownback proposal would cut the top personal tax rate for individuals earning over $15,000 (and couples earning over $30,000) from 6.45 percent to 4.9 percent, while the tax rate for those earning less would drop from 3.5 percent to three percent.

Brownback’s proposal promises that some of the state’s tax savings from eliminating the earned income tax credit would be plowed back into social programs for the poor, though the official document makes the case against the earned income tax credit by hitting on cases of tax fraud.

But what about the charitable deduction? Only about one-fourth of Kansas taxpayers itemize, and according to the Kansas City Star, the state’s charitable deduction saves taxpayers about $243 a year on average. Implicit in the governor’s proposal is the idea that lowering the maximum tax rate to 4.9 percent makes the financial attractiveness to itemizers relatively inconsequential. Taxpayers would, in theory, have more money in their pockets with which to make charitable contributions as opposed to needing a very tiny incentive.

That may be why most of the commentary and opposition to the Brownback proposal seems to bypass the charitable deduction to focus on the elimination of the mortgage interest deduction and the earned income tax credit. One critic suggests that killing the mortgage interest deduction will hurt the home-buying abilities of lower income purchasers, and many Democrats see slashing the earned income tax credit as harming the working poor.

As for the charitable deduction, how important is a tax deduction worth less than a nickel? Or is the issue not the reduction of an incentive but the symbolic meaning of a state choosing to kill a tax policy designed to benefit charity?—Rick Cohen