What Matters to Kansas: Small Business and the Defeat of the Kansas Tax Experiment

• Author: Daniel R. Alvord
• Published date: 01 March 2020
• Date: 01 March 2020
• DOI: http://doi.org/10.1177/0032329219894788
• Subject Matter: Articles

https://doi.org/10.1177/0032329219894788

Politics & Society

2020, Vol. 48(1) 27 –66

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DOI: 10.1177/0032329219894788

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Article

What Matters to Kansas:

Small Business and the

Defeat of the Kansas

Tax Experiment

Daniel R. Alvord

University of Kansas

Abstract

Why would businesses advocate for a tax increase? They may take such a position,

this article argues, when tax cuts threaten their long-term economic interests.

In 2012, Kansas eliminated taxes on many business owners but destabilized the

economy and exposed small business to the harshness of market forces. Small

businesses rely more on state services than large businesses and are more situated

in local communities. The literature suggests two main reasons for small businesses’

“enlightened self-interest” perspective. First, many benefited only marginally from

the tax cuts. Second, the savings were offset by fiscal damage to state services that

small businesses rely on. They advocated for higher taxes on themselves neither

out of altruism nor entirely out of self-interest but recognizing that they had to

pay taxes in order to stabilize the economic environment. In that position, small

businesses in Kansas may occupy the moderating political role once occupied by a

now-fractured corporate elite.

Keywords

Kansas, taxation, Sam Brownback, small business, pass-through businesses

Corresponding Author:

Daniel R. Alvord, Department of Sociology, University of Kansas, 1415 Jayhawk Blvd., 733 Fraser Hall,

Lawrence, KS 66045-7540, USA.

Email: dalvord@ku.edu

894788PASXXX10.1177/0032329219894788Politics & SocietyAlvord

research-article2020

28 Politics & Society 48(1)

After nearly three hours, Doug Albin, a small-business owner from the small town of

WaKeeney, Kansas, stood up to deliver testimony in support of a bill that repealed

most of the Kansas tax “experiment.”1 Several others had already testified both in sup-

port and opposition to a bill that closed the “LLC loophole,” the controversial provi-

sion in Governor Brownback’s 2012 tax reform that fully eliminated the state income

tax for owners of pass-through businesses. Many scholars and pundits believe that

business interests favor tax reform only when it reduces business taxes.2 The Kansas

policy essentially did this by eliminating business taxes on 330,000 business owners.

Yet over the course of the hearing, Doug Albin and other business owners urged law-

makers to repeal the tax cuts.

Eliminating income taxes for small-business owners was intended, in Brownback’s

evocative phrase, to be a “shot of adrenaline” into the heart of the Kansas economy.

Businesses were supposed to reinvest and hire more workers with their savings. “I just

want to emphasize,” Doug Albin told the Tax Committee, “that I actually benefited

greatly from this tax law. In fact, the amount of state income tax I paid last year was

less than five percent of what it would have been had there not been this LLC exclu-

sion.” But, he went on, “I didn’t employ anyone else because I’m not in the kind of

business I can.” Most small businesses did not experience this jump start, he explained,

but suffered instead from the fiscal crisis caused by the tax cuts.

“I guess that’s really mainly what I have to say,” Doug concluded as he reached into

his front pocket and pulled out an envelope. “And I also wanted to let you know that

I’m so hopeful that you will overturn this in an effort to partially rebalance our budget

that I brought my first quarter of Kansas income tax that I will approve if you reinstate

the taxes on these types of businesses. So I’ll lay this up here because I don’t know

who to give it to.” Doug walked up to Steven Johnson, the committee chairman, and

laid down the envelope with the check inside. “Do we have anyone from the Department

of Revenue still here?” Johnson joked.

This episode epitomizes the puzzle at the center of this article. Why would busi-

nesses advocate for a tax increase? Political rhetoric and scholarly accounts tend to

emphasize business’s desire to pay as little tax as possible, and Republicans in Kansas

had delivered just that outcome. Under Governor Brownback, in 2012 Kansas passed

one of the largest tax cuts of any state, by percentage in a single year.3 The goal was

for Kansas to be the second state to eliminate the income tax. Alaska was first; it

repealed the state income tax in 1980 following the completion of the Trans-Alaska

Pipeline and a massive influx of new oil and natural gas revenue. Unlike Alaska, how-

ever, Kansas proposed to pay for eliminating the income tax solely on the promise that

it would stimulate future supply-side economic growth. Key to the program was the

full elimination of state income taxes for business owners. But small-business owners

and local chambers of commerce rejected this gift to business and mobilized, success-

fully, for the repeal of the tax cuts.

I argue that business took that unusual position because the radical nature of the tax

cuts was seen as a threat to business’s long-term economic interests. The cuts destabi-

lized the economy by exposing small-business owners to the harshness of market

forces. Tax policy in Kansas breached the social limits of tax cuts by attempting to

Alvord 29

“disembed” economic relations from social and community relations. As Karl Polanyi

suggested, attempts at disembedding are often met with a countermove toward social

protection.4 In Kansas, anti-tax-cut mobilization from the small-business community

represents such a movement. Fred Block notes that the destabilizing nature of such

policies makes unsustainable demands on ordinary people, arguing that “workers,

farmers, and small business people will not tolerate for any length of time a pattern of

economic organization in which they are subject to periodic dramatic fluctuations in

their economic circumstances.”5 The Kansas tax cuts produced these dramatic fluctua-

tions and exposed the contradictions apparent in attempts at disembedding the econ-

omy from social relations.

I draw on the literature of business mobilization6 to argue that small businesses

adopted an “enlightened self-interest” perspective for two main reasons. The first is

that many businesses benefited only marginally from the tax cuts. The second is that

members of the small-business community believed any tax savings were offset by the

fiscal damage done to the state. Small businesses rely more on state services and are

more situated in local communities than large businesses, and the fiscal damage caused

by the tax cuts harmed the state services on which small businesses rely. In advocating

for higher taxes on themselves, small businesses did not act entirely out of either altru-

ism or self-interest but rather in the recognition that they had to pay taxes to stabilize

the economic environment. In taking that position, I argue, small business may now

occupy the moderating political role that large corporations played in the mid-twenti-

eth century,7 a role abandoned by a now-fractured corporate elite. The novelty of the

Kansas case is not the observation of businesses’ moderating impulse. Rather, it lies in

the fact that the moderating impulse comes from small businesses—the very busi-

nesses targeted for these tax cuts.

Business Mobilizations, Unity, and Fracturing

Scholarship on business political action often focuses on business unity,8 the idea that

businesses successfully wield political power by unifying around issues perceived to

threaten business interests, such as new regulations or higher taxes. Strong anti-tax busi-

ness lobbying is, however, a relatively recent development. Immediately after World War

II, corporate leaders were willing to increase their own taxes when political and economic

conditions necessitated it.9 According to Monica Prasad, businesses were initially against

the Reagan tax cuts because of concern over how the large deficits produced by the cuts

would affect the economy.10 However, in later tax-cut battles, business has become

increasingly immoderate, pushing for cuts at all costs, without regard for deficits.

The postwar business elite were willing to look beyond short-term economic

interests. Pragmatically (if begrudgingly) they signaled concern for the broader soci-

ety by accepting the need for taxes and government regulations. However, beginning

in the 1970s, businesses abandoned that sensibility.11 They united horizontally

(across firms in different sectors) and vertically (across firms of different sizes)

against the perceived threat of labor unions and government intervention in the

economy. “A general consensus emerged between big and small business, industrial