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7/9/2013

It's time to take a look at that new tax policy wrinkle thought up by the Kansas Legislature last session. It bears the most benign name: haircut.

Amid the contraction of tax brackets from three to two done in 2012, and the lowering of those rates last year, there is this haircut business.

What it means is some of those deductions we've all grown cozy with -- say the portion of your mortgage payment that is interest on the loan or the property taxes you pay -- are no longer a dollar-for-dollar reduction in your taxable income.

They get a haircut.

The whole idea was that in 2012 -- remember, that was an election year for the House and Senate and most voters would rather read about a tax cut than stand by the curb and hope a politician tossed their kids hard candy -- lawmakers gave away too much money in tax cuts.

They gave away too much to suit the governor, and they gave away money that they never thought would actually make it into state law. It was just, well, too big for anyone to believe would actually happen.

So, this year we got the haircut -- that harmless, almost cute sounding little word -- to fix things.

What it means is that when you total up all the deductions you can claim on state individual income taxes -- the biggies are home mortgage interest and property taxes -- you give them a haircut, a 30 percent haircut for this tax year.

Now, that means if you've paid $5,000 in interest on your home mortgage, and if you are in the early years of paying off that mortgage, most of what you pay is interest; that $5,000 you didn't pay taxes on last year becomes $3,500 that you don't pay taxes on.

The math applies to every other deduction you claim, except for charitable contributions because lawmakers were smart enough not to mess with charity: While we're used to writing off from taxable income those deductions, they also go to churches and to social services and such that are noble and wind up meaning that in many cases, the state doesn't have to finance those social services. It's a tax break that helps charities and probably saves the state money, too.

So, what is this haircut business worth on a statewide basis? More than $100 million in money that will roll into the state general fund.

Now, the haircut wasn't the only tax deal this year, that 6.3 percent sales tax was scheduled to drop to just 5.7 percent -- worth more than $200 million in lost state revenue -- but that didn't happen, did it? The sales tax was rejuvenated, at a rate of 6.15 percent, still a little drop for those who count their pennies, but almost imperceptible to most folks who buy anything.

But the clever part was the haircut.

And the name for that procedure, well it sounds a lot nicer than a "comb-over," doesn't it?

Syndicated by Hawver News Co. of Topeka, Martin Hawver is publisher of Hawver's Capitol Report. To learn more about this nonpartisan statewide political news service, visit www.hawvernews.com.

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