Gibson also has a legal business, FreeState Patent Services, which is structured as an LLC. In the past few years, he did not pay income taxes on his earnings in the practice. He said the experiment allowed for wealthy individuals to structure their income as pass-through, allowing them to avoid paying income tax at the state level.
“It’s a few thousand dollars over a few years. It’s not a large impact on my bottom line,” he said. “What is proposed as a small-business tax break is actually not about small businesses. It’s about effectively eliminating taxes on a handful of extraordinarily wealthy individuals to the detriment of the rest of us.”
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Other small businesses, like Karl Miller’s Lark Label in Wichita, echoed Gibson’s point in not seeing enough savings to benefit from the experiment. His company has been around for 20 years and has three employees, including Miller. Being structured as an LLC saved him some $1,400 a year max under the experiment, he said, nowhere near enough to hire a new employee.
“As a small-business guy, I’m always in favor of additional money in my pocket, less taxation,” he said. “I don’t think you’ll find a person who will argue against less taxation. At the same time, I do believe in it. I enjoy driving down a good road; I enjoy the fact that I’ve got clean water and sewage and police protection. Those are all good things worth paying taxes for.”
Beyond Kansas, Miller said he favors federal tax reform but said the Trump administration needs to learn from the lessons the Kansas experiment has provided. The issue is key for small businesses nationwide, ranking a top-three concern, according to the conservative lobbying group the National Federation of Independent Business, which advocates for parity between corporations and small businesses when it comes to tax reform.
“We have a very good example here where it didn’t really work out,” he said. “Not to say the entire concept is bad, but it needs to be changed up slightly to make sure that not so much money goes out that it causes economic problems for the government.”