5 Kansas newspapers, 48 written testimonies, 2 local chambers of commerce, a former governor, and mounting public pressure supports of a repeal of a tax loophole that allows some Koch LLCs to pay NO STATE INCOME TAX. The loophole's only defenders seem to be multiple Koch AstroTurf groups, which just doubled down to support the loophole.

We previously covered How Koch Industries Is Responsible for Kansas Budget Woes. Since that article was published one week ago, public pressure has continued to mount for a repeal of the Kansas Koch LLC Loophole that allows pass-through business income to be INCOME TAX EXEMPT while wage earners continue to be subject to state income tax. This loophole costs the state an estimated $261 million a year in lost revenue, more than the entire recent budget shortfall that has been covered in national publications like The Atlantic.

One of the earliest calls for closing the loophole came in March 2015. Former Kansas Governor John W. Carlin wrote on his blog:

When the cuts were made to income taxes, eliminating them for LLCs (Limited Liability Corporations), the effect was similar to sawing off one leg of a three-legged stool; it threw off the balance of other taxes and fees that make up the overall budget….It’s not just about the either/or of raising taxes or cutting budgets but finding a balance that best serves our people, such as putting the income tax leg back on the stool.

More recently, pressure has been mounting for a repeal of the loophole. To date, five separate Kansas newspapers have published editorials calling for a repeal of the Koch Tax Loophole:

As we previously covered, one survey of Wichita small businesses found that 80% supported paying higher taxes, and two local chambers of commerce came out publicly and explicitly against the “Kansas LLC Law”:

Since then, a business audience in Johnson County gave “sustained applause” to Republican Rep. Melissa Rooker, following her call for higher taxes. Another Republican state legislator, Rep. Tom Moxley said of the loophole, “it obviously is not fair. It’s nuts.”

Even the conservative, and Koch-funded, Tax Foundation has said that the Koch LLC Loophole is responsible for “tax avoidance, not job creation.”

As we previously reported, affiliates of Koch Industries, Charles Koch, and/or David Koch appear to be the nexus of support behind the “Kansas LLC Law.” Out of over 50 written testimonies submitted in March, in response to a House bill (HB 2444) that would close the loophole, only four defended the loophole:

On April 28, another hearing was held on SB 508, a Senate bill that would partially close the loophole. The only testimony explicitly in support of the loophole came from three of the same four Koch-affiliated groups that previously offered testimony (NFIB, Kansas Chamber, and Kansas Policy Institute). The representative from the Kansas Chamber issued a thinly veiled threat to the Republicans supporting a repeal of the loophole:

One state Senator (Sen. Donovan), who took campaign money from Koch Industries between 1999-2012 was reported as criticizing the media coverage of the LLC loophole (you’re welcome!).

At the end of the day, GOP House members huddled in a closed caucus to discuss a poll commissioned by a secret unnamed source (who ever could it be?) and conducted by the Singularis Group. According to a media report:

The poll [of just 300 voters] found that 33 percent of voters support raising taxes on small businesses to help balance the state’s budget, while 57 percent favor continuing to trim spending.

The poll question was oriented around a “tax increase on small business” versus “trim[ming] spending.” It did not mention that there is no data to support the assertion that eliminating the loophole primarily affects small businesses. In fact, it is likely that a disproportionate share of the tax-exempt income flows to high income earners and large businesses like Koch Industries. Furthermore, it does not appear that respondents were provided the full context (pass through business income is currently tax-exempt while wage earners pay state income taxes).

Eliminating the loophole is neither targeted at “small businesses” nor doing anything other than bringing their tax rates to parity with all other income-generating individuals in the state. It is appropriate to leave you with the words of none other than Charles Koch (from his recent This Week interview on ABC):

If I control the Republican Party, we would not have a two-tiered system….We would not have welfare for the wealthy. We would not have a tax code that subsidizes the wealthy. We would get rid of all of that

In Kansas, Charles Koch does appear to have considerable influence in the state government; the ball is in his court!