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April 2013 Brief: Volume 20, Number 10

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No Place Like Home!

 

by Deborah D. Thornton

 

 

When Dorothy said there was “No place like home!” after having been first frustrated and bored by life on her aunt and uncle’s rural Kansas farm, then threatened and attacked by the evil witch in Oz, she was not referring to state tax policy – but Governor Sam Brownback’s (Republican) proposed new state tax policies may create great reasons for young people to return home to rural Kansas.

 

Brownback’s long-term plan is to eliminate individual income-tax rates. In 2012, under his leadership, the top rate was reduced from 6.49 percent to 4.9 percent and small business owners such as sole proprietorships were exempted from business-income taxes.[1] In continuing this effort, the current proposal is to further reduce the top rate to 3.5 percent, with the lowest rate at only 1.9 percent.[2] Eventually Brownback wants to completely eliminate the state income tax. Currently only seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, and Washington.[3]

 

In Kansas, additional tax revenue would be collected by keeping the state sales tax at 6.3 percent. The sales tax was raised three years ago from 5.7 percent to 6.3 as a temporary measure during the recession. Additionally, Brownback is proposing to eliminate some specialty deductions such as the mortgage-interest deduction. Only one of four Kansas taxpayers itemizes deductions on their tax returns and takes advantage of this loophole – mostly high-income earners.[4] The end result will be a simpler and clearer tax structure.

 

In addition, Governor Brownback proposed and passed a five-year “Rural Opportunity Zone” (ROZ) plan designed to reinforce the idea that “No place like home” can be Oz-like for established families, skilled workers, and college-educated young people.

 

Fifty counties which have experienced double-digit population loss over the past 10 years have been designated ROZ counties. The majority are in far northwestern Kansas, but some, such as Kingman in south-central Kansas, are near more urban areas (Wichita). Many Kingman County residents currently commute 40 minutes to Wichita for work, resulting in stress on their family and the community.[5]

 

Those who move to ROZ counties will have their state income taxes waived from 2012 – 2016 if they lived outside the state for the previous five years, or lived in Kansas but had an income of less than $10,000. For high-income earners such as doctors this could be a significant draw. And because many of these counties have very low unemployment, new workers at all levels are needed.

 

The average debt of college graduates today is almost $27,000 – and with unemployment remaining near 9 percent, many do not have jobs or are underemployed.[6] The Kansas plan calls for state and county governments to pay off new residents’ student loans at $3,000 a year for five years, for a total of $15,000, tax-free. If the recipient ends up moving from the ROZ county before the five years is up, there would be no penalty.

 

Like Kansas, Iowa’s rural counties have a continuing problem with declining populations, though not as severe. “Iowa Population Over 100 Years,” released by Iowa State University in 2011, found that six counties had 10 percent or greater population losses from 2000 to 2010: Adams (-10.1), Audubon (-10.4), Calhoun (-13.0), Greene (-9.9), Pocahontas (-15.6), and Sac (-10.2).[7]

 

Another 27 counties had population losses of 5 percent or more between 2000 and 2010: Adair, Appanoose, Cherokee, Chickasaw, Emmet, Fayette, Fremont, Hancock, Hardin, Humboldt, Ida, Keokuk, Kossuth, Lee, Louisa, Lucas, Monona, Montgomery, Osceola, Page, Palo Alto, Ringgold, Shelby, Taylor, Webster, Winnebago, and Wright. Some of these are also the counties with the smallest populations, such as Adams (4,029), Audubon (6,119), Osceola, (6,462), Ringgold (5,131), and Taylor (6,317).[8] These counties cannot afford continued population losses.

 

Counties which are losing or have low populations have fewer minority residents and single mothers, lower educational attainment at both the high school and college levels, fewer people in the workforce and lower incomes, more agricultural jobs, and fewer jobs in high skill areas such as finance, insurance, real estate, or professional services.[9]

 

The Iowa State report predicted that the 80-year trend of “depopulation” will continue and that a rural resurgence would be “unlikely.” It also predicted that depopulation will be “especially acute” in the southern and west-central counties, much as in Kansas.[10]

 

In order for our “Dorothys” to think of Iowa as home and click their heels in order to return, we must act quickly to ensure that Iowa is attractive to them and to encourage them. Passing Governor Branstad’s property tax reduction proposal is one good place to start. Lowering Iowa personal income tax rates and cleaning up the convoluted tax structure and credits is another. Finally, a Kansas-style ROZ program, providing incentives to our young people and businesses to locate in these rural counties, is an idea which should be seriously considered.

 

(Endnotes)
[1] John Hanna, “New Income Tax Plan Emerging in Kansas House,” The Wichita Eagle, March 12, 2013, <http://www.kansas.com/2013/03/11/v-print/2711790/apnewsbreak-new-kan-income-tax.html> accessed on March 12, 2013.
[2] Morgan Korn, “Why Kansas Gov. Sam Brownback Believes His ‘Red State’ Tax Model Will Work,” The Daily Ticker, March 8, 2013, <http://finance.yahoo.com/blogs/daily-ticker/why-kansas-gov-sam-brownback-believes-red-state-132824989.html> accessed on March 12, 2013.
[3] “States without an Income Tax,” About.com, <http://taxes.about.com/od/statetaxes/a/tax-free-states.htm> accessed on March 10, 2013.
[4] Korn.
[5] Rick Plumlee, “Brownback Program’s Goal: Rural Growth,” The Wichita Eagle, April 12, 2011, <http://www.kansas.com/2011/04/12/1804318/brownback-programs-goal-rural.html> accessed on March 11, 2013.
[6] “Average Student Debt Climbs to $26,600 for Class of 2012,” The Institute for College Access and Success, October 18, 2012, <http://ticas.org/files/pub//Release_SDR12_101812.pdf> accessed on March 12, 2013.
[7] David J. Peters, Ph.D. “Iowa Population Over 100 Years,” Iowa State University, University Extension, February 2011, p. 6, <http://www.soc.iastate.edu/dpeters/pubs/PM3010.pdf> accessed on March 11, 2013.
[8] Ibid., p. 4.
[9] Ibid., p.8.
[10] Ibid., p. 10

 

Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.

 

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