OPINION: Trump, Kansas, and the Business Loophole

This past Wednesday, President Trump released the tax plan that he had promised in his campaign. According to the plan, there will be 3 total tax brackets of 10%, 25%, and 35%, and the standard deduction will be doubled. As well as this, taxes such as the death tax and the Alternative Minimum tax will be repealed. This article is not about these things, however. No, this is about the business tax rate.

Among the details in this plan is the business tax rate, which will be lowered to 15%. This is something Trump has promised repeatedly on the campaign trail. Great, right? Well, maybe.

As a citizen of Kansas, I know that we have a small funding problem… Who am I kidding? It’s pretty bad. Our taxes are so low, Governor Sam Brownback has cut our education spending, and our state is running off of the pennies lying on the side of the street.

So, how did we get here? That’s not an easy answer, but Brownback’s tax cuts have surely not helped in the process. However, we’ll be looking at one specific part of the Kansas tax code, nicknamed as the LLC Loophole.

 Kansas Governor Sam Brownback, notorious for his aggressive tax cuts. Source: US News

Kansas Governor Sam Brownback, notorious for his aggressive tax cuts. Source: US News

How does this work? In Kansas the tax rate for corporations is 4% (As well as an additional 3% surtax on income of over $50,000). However, here’s the thing: Kansas offers a small business tax-exemption, which according to the Kansas website means that: “Most small businesses do not pay taxes in our state…” 

So, where’s the loophole? Think about it this way: If anyone can start a business, that means YOU could theoretically start a business, make a contract with the place you work, and essentially never pay income taxes. If you think that’s bad, that’s because it is. And Kansas is missing out on tax money because of it.

 Secretary of the Treasury Steven Mnuchin unveiling Trump's Tax Plan last Wednesday. Source: NBC

Secretary of the Treasury Steven Mnuchin unveiling Trump's Tax Plan last Wednesday. Source: NBC

So, how does this relate to Trump and his tax plan? While his tax plan doesn’t have a small-business tax exemption, it does have a very low tax rate for businesses. This means if a person fell into a high enough tax brackets, they could simply start a “small-business” and make money off of their employer as a business at a 15% rate instead of 25% or 35%.