Kansas Progress Institute

Ad Astra Per Aspera ~ To the Stars Through Difficulties

Koch Payoff

Posted on May 11, 2017

By C. Joshua Shepard

The Koch brothers’ politically contributions to Sam Brownback have been extraordinarily profitable

 

In 2012, on top of a tax rate cut for wealthy people who didn’t really need it, under the leadership of  Governor Sam Brownback the Kansas legislature approved a complete exemption  from paying any tax for LLCs (or Limited Liability Companies,  limited partnerships, and S-Corporations).

 

Throughout his political career, Brownback’s strongest backers have been the Wichita Koch brothers.  From their point of view, this single tax law change represented an extravagantly generous payback.

 

Brownback proclaimed that the tax cuts and LLC exemptions would “pave the way to the creation of tens of thousands of new jobs” and “bring tens of thousands of people to Kansas, and help make our state the best place in America to start and grow a small business.” It didn’t happen. Instead personal income and employment have grown substantially slower in Kansas than in the U.S.

 

Since that law change,  the Kansas Department of Revenue has reported multiple consecutive years of unprecedented budgetary shortfalls.  In fiscal year 2014, the first year the loophole was fully implemented, revenue declined by 700M from FY 2013, or around 10% of all revenues.  Because the Kansas Constitution requires a balanced budget, it was necessary to dip into funds for essential public services, including hundreds of millions diverted from Kansas highways.

 

While  Kansas as a whole did not benefit,  some of the exemption’s strongest supporters did. Some of them were present with Brownback at the May 21, 2012 signing of the tax cut and the LLC loophole. They included Derrick Sontag, then the state director of the national PAC, Americans for Prosperity (AFP), founded and still funded by the Koch Brothers. Other Koch-funded vehicles were represented at the signing by Dave Trabert of the Kansas Policy Institute, and David Murfin, then Chairman of the Koch-supported Kansas Chamber of Commerce.

 

In 2016 Forbes Magazine listed Koch Industries as the second largest privately owned company in the US, with around $100 Billion in 2015 profits. Let’s just assume this sum includes  revenue from 47  Koch-owned LLCs registered in Kansas,  such as Atlanta-based paper giant Georgia Pacific. It is impossible to say how much money the Kochs gained from the LLC exemption, because Kansas tax returns are secret. However, there is good reason to believe that, by Kansas standards,  the sums were very large. Prior to the LLC exemption the tax rate for upper income LLCs was  6.45%. Now suppose we assume that as much as 1 percent of Koch income was taxable by Kansas, probably a conservative estimate given that Koch Industries is headquartered in Kansas. Then the Kansas budget would have lost $ 64.5 M in revenue in 2016 alone.

 

Year by year, the tax law changes have made it hard to predict future revenues. In Fiscal Year 2017, Kansas had a massive $350 million budget shortfall from already reduced expectations.   Brownback’s gift to Koch Industries alone represents something like 18 percent of that shortfall.

 

As a result, the tax burden to cover essential public infrastructure and other services that benefit all Kansans has shifted to the rest of us.  In other words we are subsidizing Koch Industries, their fossil fuel allies and their various front groups. Some of that money is then recycled into selling Kansans and their elected officials on the benefits of decreasing taxes for the wealthy, as well as on other extremist ideas.

 

Which raises the question: how much of our money is being used to push these ideas, either through front groups like AFP, or through contributions to legislators? That is an important topic for future KPI research.

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