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Sunday, July 27, 2014

New estimate lowers deficit of Kansas income tax plan

BY BRENT D. WISTROM
Eagle Topeka bureau

TOPEKA – The outlook improved Monday for a proposed tax-cutting plan being debated by House and Senate negotiators.

New projections show the plan would start creating budget deficits in 2016, growing to a $160 million shortfall in 2018. That’s compared to a projection produced just days earlier that showed a $910 million hole in 2018.

Improved numbers reflect more optimistic projections for sales tax growth – from 3.75 percent to 4 percent – and two changes to the proposal that happened last Thursday but weren’t accounted for in projections produced last Friday.

Democrats doubted the accuracy of the new figures and suggested they were intended to produce a better outlook.

“I’m very concerned that we’ve got a lot of policy here that we don’t understand,” said Sen. Tom Holland, D-Baldwin City, who is on the tax conference committee. “We’re not getting a handle on the numbers we need to make good decisions going forward for Kansans.”

But Republicans voiced hope that with a tweak or two they can agree on tax reductions the state can afford.

Rep. Richard Carlson, R-St. Marys, suggested Senate members consider setting individual income tax rates at 4.9 percent with a 0.2 percent surcharge for the next two years before dropping the rates permanently to 4.9 percent, a move that would improve projected deficits, at least temporarily.

Meanwhile, Sen. Les Donovan, R-Wichita, proposed that the state phase out nonwage income taxes for businesses more slowly to ease costs, at least in the near term.

The complicated tax proposal focuses on reducing, then eliminating, taxes for limited liability companies, subchapter S corporations and sole proprietorships while dialing down individual income tax rates to 3 percent on the first $30,000 of income for joint filers and 4.9 percent on income thereafter.

New estimates account for a change that would require businesses to pay taxes on losses they carry forward into future tax years and a proposal to remove renters from a homestead exemption and funnel the money back into the program for homeowners.

But the improved sales tax revenue projections – from 3.75 percent growth to 4 percent – also contribute millions.

Legislative researchers say the increase fits with past estimates they’ve made. But recent history suggests they are optimistic.

Retail sales tax revenue increased an average of 3.4 percent from 1992 to 2009, according to an analysis by John Wong, a former Wichita State University professor who conducted his analysis for the Kansas Economic Progress Council.

All the numbers could go out the window quickly if the state’s economy booms or busts.

Donovan hedges toward a boom.

“We have to have a little bit of faith in the Kansas work ethic and the things that we do well,” he said. “And there’s lots and lots of signs out there of things getting better.”

He noted the uptick of oil and gas drilling in south-central Kansas and the expansion of Rubbermaid in Winfield.

Donovan said people need to be hopeful and put some faith in Gov. Sam Brownback’s ideas.

“It’s cutting taxes and making it the place that people will say, ‘Hey, look what Kansas is doing. Let’s go down there and open a building and hire some people,’ ” he said. “Do that. That’s what we need. We need it to happen over, and over and over. And there’s a good chance we can do that.”

Reach Brent Wistrom at 785-296-3006 or bwistrom@wichitaeagle.com.

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