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Wednesday, April 16, 2014

Legislative tax committee members may have conflicts of interest on tax plan

By Dion Lefler
Eagle Topeka bureau

Members of the state Legislature’s tax committees aren’t just key decision makers on Gov. Sam Brownback’s tax plan — they’d also be among its biggest beneficiaries.

Twenty of the 23 members of the House Taxation Committee have business interests that would be exempted from state income tax under the Brownback plan. In the Senate, nine of 11 members of the Assessment and Taxation Committee have interests that would go untaxed.

The data is reported in the lawmakers’ statements of substantial interest, a form all state officials are required to file disclosing business interests that could affect their governmental duties.

After looking at the data gathered by The Eagle, Senate Minority Leader and tax committee member Anthony Hensley, D-Topeka, suggested that some of the members should consider recusing themselves from voting on the plan.

“They certainly ought to at least let the general public and the rest of their colleagues know that they have a conflict of interest,” Hensley said. “We have rules in the Senate that provide for that.

“When a bill hits the floor on final action, you cannot be forced to vote if you have a conflict of interest and you announce that publicly before the vote takes place. It addresses this very kind of thing.”

Hensley works as a teacher in the Topeka school district and does not have any business ventures that would be tax-exempt.

Rep. Richard Carlson, R-St. Marys and chairman of the House tax committee, said he doesn’t see a problem with committee members’ ownership of business interests that would be untaxed under Brownback’s plan.

“I was not specifically aware of that, but many of the people we have here (on the tax committee) are business people,” he said

Carlson reported farm and real-estate interests that would be exempted from state income tax.

He said he does not think the tax proposal meets the threshold of individual interest that would justify recusal.

The tax bill, he said, “does not specifically favor any one type of business.” It also contains more generalized benefits, such as lowering the overall tax rate.

“If you lower individual income tax rates, I suspect that’s going to affect every member of the House and Senate. We do not control each individual’s vote. We do ask them to abstain if they have a particular conflict of interest, in other words if there’s legislation that specifically addresses their type of industry.”

He said representatives often vote on bills that affect them.

“We have attorneys here who constantly vote on bills in Judiciary (committee) that could or could not potentially perhaps be a conflict of interest,” he said.

As for the tax bill, he added: “The House did not propose the bill, it was the governor. We’ll take a look at it on an objective basis.”

Changes would favor business owners

The members of the tax committees will be in the forefront in evaluating the tax plan that Brownback has proposed as part of an effort to revitalize the state’s economy.

For wage earners, the governor wants to lower the income tax on the two top brackets from a maximum 6.45 percent to 4.9 percent, which would apply to income over $15,000. The rate on income under $15,000 would drop from 3.5 to 3 percent. However, those cuts would be offset to some degree by elimination of popular deductions such as home mortgage interest and charitable donations.

The working poor would lose the earned income tax credit, which provides tax refunds to encourage people to work at low-wage jobs instead of going on welfare. Brownback proposed to partially compensate for that by increasing funding for Medicaid and other social-service programs.

The biggest tax relief would be directed to certain categories of business owners and investors. Brownback’s hope is that the cuts would spur them to reinvest the money in their companies and hire more people.

The plan would completely eliminate the state tax on personal non-wage income derived from limited liability companies, sole proprietorships, partnerships, farms, rental property and trusts. That covers nearly all small businesses and many large ones. By paying themselves dividends instead of salaries, business owners could avoid paying state income tax.

In essence, the tax cut would equate to about a 6 percent boost in profitability for those types of businesses.

Senate tax committee member Dick Kelsey, R-Goddard, who owns rental property and has a 50 percent interest in a limited liability company in the drug- and alcohol-treatment field, proposed his own tax plan and said he couldn’t in good conscience vote for the governor’s proposal to zero out taxes for businesses like his.

“I do not support the (Brownback) plan. I haven’t supported that aspect from the day I saw it, because for me it would not be proper because my benefit would be far too extreme,” Kelsey said.

Rep. Nile Dillmore, D-Wichita, was among the few members of the House tax committee reporting no business interests that would be untaxed under the governor’s plan.

“I think obviously (there is) a difficulty with evaluating this tax plan objectively if that high a percentage of the people who are going to be examining this are some of the highest beneficiaries,” Dillmore said.

He said, however, that it’s fairly common in the Legislature for lawmakers to gravitate to committee work in areas they know, for example, attorneys serving on the judiciary committees or teachers serving on the education committee.

Because of the part-time nature of the job, the Legislature is skewed toward members who are self-employed or have business-investment income, Dillmore said.

“Given the structure which we have and the way in which we compensate people ... you’re pretty much going to get the people who are retired, have a business, (or) one way or another have means to support themselves outside of what they earn here at the Legislature,” he said.

“I’m a lucky guy. I work for a credit union in Wichita and they are very flexible and have worked with me so I could serve here during the legislative session.”

Reach Dion Lefler at 316-268-6527 or dlefler@wichitaeagle.com.

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