TOPEKA — A variant of Gov. Sam Brownback’s plan to cut income taxes for individuals and eventually eliminate them for certain types of businesses took a major step toward final passage Thursday.
Over the objection of Democrats, the Republicans on a House-Senate conference committee decided to move the measure forward. The Democrats can delay – and are delaying – the final vote, but it’s unlikely they’ll be able to block the plan.
The final tax bill is based on ideas that Brownback advanced in his State of the State speech in January, although the tax rates will drop more slowly than he originally proposed.
The most controversial part of the plan is that it will eventually eliminate state taxes on several types of business income, including proceeds from farms, limited liability companies, sole proprietorships and corporations organized under Subchapter S of the federal tax code.
Democrats oppose that because they say it would give special treatment to certain taxpayers based on how they make their money, favoring business and investment income over workers’ paycheck earnings.
“One of the concerns that I have about the approach we’re taking here is we’re creating a new class of citizen, if you will,” said Rep. Nile Dillmore, D-Wichita, and one of the two Democrats on the six-member conference committee. “We’re creating a class of economic elites. We’re saying, ‘By virtue of the way you make your money, you don’t have responsibilities that people who work for a living have.’
“I think creating that special class is harmful,” Dillmore continued. “It concerns me greatly that we are going down that kind of road … I wonder as time goes by how many more privileges we’re going to extend to this class.”
Rep. Richard Carlson, R-St. Marys, disputed Dillmore’s argument, saying, “I would hope we certainly have not created a special class.
“I think we have created a class of citizens who pay a fair tax rate and it’s a lower tax rate, then they’re able to keep their money and reinvest it in the economy and grow the economy and not necessarily the public sector keep that money.”
Thursday, the four Republicans on the tax conference committee executed what is called an “agree to disagree” with the two committee Democrats.
Following a couple of procedural steps, the committee Republicans will be able to move the tax plan forward without the support of either of the Democrats.
The plan is expected to go to a final vote in the House and Senate next week.
Just before executing the agree to disagree, the committee restored one planned cut, the child-care tax credit.
The agreement will also drop the state sales tax rate from 6.3 percent to 5.7 percent in July 2013.
Lawmakers have war-gamed numerous scenarios to cut taxes while still maintaining enough revenue to fund core services.
Earlier this week, the nonpartisan Office of Legislative Research estimated that the tax cut would create a $712 million deficit by 2018.
Wednesday , the analysts released new numbers showing that by slowing implementation of lower tax rates, the $712 million deficit changes to a $158 million surplus in 2018.
For single workers earning less than $15,000 a year in taxable income and married couples making less than $30,000 a year, the tax rate will drop from 3.5 to 3 percent and stay there. The change will take place for tax year 2013. Those tax returns are due April 15, 2014.
Singles earning $15,000 to $30,000 a year and married couples making from $30,000 to $60,000 now pay 6.25 percent. Single taxpayers making $30,000 or more and couples making $60,000 or more pay 6.45 percent.
The new rates for those taxpayers will be 5.5 percent for tax years 2013 and 2014, 5.3 percent in 2015, 5.1 percent in 2016, and 4.9 percent in 2017 and thereafter.
The business tax exemptions will also phase in from 2013 to 2017.
In 2013 and 2014, business income will be exempt up to $100,000.
The exemption rises to $250,000 for 2015 and 2016.
From 2017 on, the income tax on eligible businesses will be eliminated.