The chief financial officer of Koch Industries said the company does not support efforts to keep a controversial tax exemption for business owners.
Kansas created the exemption on nonwage income for the owners of limited liability companies and other pass-through businesses in 2012 at the urging of Gov. Sam Brownback. Koch has a history of backing the policy’s primary supporters.
Koch CFO Steve Feilmeier, in an interview with the Kansas City Business Journal last week, pushed back on the idea that the Wichita-based company is one of the driving forces behind the law.
“People just assume that Koch is in Topeka pulling puppet strings,” Feilmeier told the Business Journal. “That is not accurate.”
In a statement to The Eagle, Feilmeier said Koch wants the state to curb spending before changing the tax code but also criticized the exemption.
“We have consistently said Kansas must first fix our spending problem, then and only then address the tax code,” Feilmeier said in the statement.
“There needs to be more equality in how the tax gets applied,” he said. “You can’t have half the state exempt and the other half not exempt.”
Koch’s portfolio includes companies that are LLCs, such as Koch Carbon and Koch Fertilizer.
Koch has ties to organizations that have been the primary proponents of keeping the exemption: the Kansas Chamber of Commerce and Americans for Prosperity. Both groups strongly opposed bills that would have rolled back the exemption in 2015 and 2016.
Americans for Prosperity does not disclose its donors, but David Koch is chairman of the Americans for Prosperity Foundation’s board of directors.
Koch Industries is a “Cornerstone Member” of the Kansas Chamber of Commerce and donated a combined $120,000 to the chamber’s political action committee in July and October. The chamber paid for campaign mailers and radio ads attacking Democrats and moderate Republicans who had been outspoken opponents of the governor’s tax policies during the election.
Eric Stafford, the chamber’s vice president of governmental affairs, said the organization’s position on the policy hasn’t changed and that it will oppose a proposal to roll back the exemption, which will be reviewed by the House Taxation Committee on Thursday.
Job growth numbers
The Charles Koch Foundation also provided $3.5 million to found the Center for the Study of Economic Liberty at Arizona State University in 2014. The center published a joint study with the Kansas Policy Institute, which does not disclose its donors, earlier this month touting the Kansas tax policy.
The study, titled “A Thousand Flowers Blooming: Understanding Job Growth and the Kansas Tax Reforms,” said the tax policy was spurring growth because the bulk of job growth in Kansas in 2013 and 2014 came from businesses that qualify for the exemption.
However, the data in the study shows that Kansas saw a lower rate of job growth among pass-through businesses than the nation and two neighboring states that did not enact similar tax reforms.
Kansas saw an 8.4 percent increase in the number of jobs from pass-through businesses between 2012 and 2014, compared with 9.5 percent nationwide, according to the U.S. Census data cited in the study.
Missouri and Nebraska saw growth rates of 9.5 percent and 11.7 percent, respectively, during that period.
“Maybe a hundred flowers blooming,” Ken Kriz, an economist at Wichita State University, joked when asked about the study.
Dave Trabert, president of the Kansas Policy Institute, said the study showed Kansas “performed much more competitively after tax reform than before.”
In the two years before the tax exemption, Kansas had a job growth rate from pass-through businesses of 2.4 percent compared with a national rate of 4.6 percent.
“While they trailed the nation before and after, much more competitive,” Trabert said last week. “Where it was way below the national average, now it’s almost there. This is what you look for.
“You’re not going to see instantaneous leaping to the front. I kind of liken it to when I ran track in high school. … I always started out in the back of the pack and I had to pass people one at a time to move forward. And that’s what Kansas is doing.”
Kriz called the study flawed because it did not track the state’s economy over a longer time period.
However, he said the data shows that the tax cuts haven’t spurred the rapid growth Brownback promised when the state adopted the policy.
“I don’t think we have a bad economy in Kansas. I think we have an average economy … to maybe slightly below average. It’s not terrible. The tax cuts haven’t caused massive (economic) problems,” Kriz said.
“However, I don’t think it’s come anywhere close to yielding the growth rates that were promised, and it does so at a great expense to the quality and availability of public services.”