TOPEKA – Gov. Sam Brownback said he’s ready to sign a major tax-cut plan that is projected to plunge the state’s budget into a $270 million deficit in 2014 and cascade to a $2 billion hole within a few years.
The plan eliminates income taxes on 191,000 businesses, cuts individual tax rates and allows six-tenths of a cent of sales tax to expire next year as planned.
Backers say it will spur job growth, but opponents say it is likely to force drastic cutbacks to state services.
The House approved the plan in an abrupt and dramatic political play Wednesday after conservative Republican leaders heard the Senate might kill a compromise tax reduction bill that House and Senate lawmakers have been negotiating for weeks. That plan would phase in the tax cuts over several years, lessening their impact on the budget.
The 64-59 vote was a clear strike against moderate Republicans in the Senate, who had expressed skepticism about eliminating or cutting income tax rates at a time when they say Kansans are more interested in property tax relief and adequate funding for education.
Following the conservative thinking of supply-side economics, Brownback predicted the tax cuts would prompt employers to hire more people.
“It would create tens of thousands of new jobs, and combined with spending restraint, will help to reverse a lost decade of declining employment,” he said.
But conservative leaders including Brownback said they still hope senators will resume discussion of the compromise tax-cut plan that doesn’t project budget deficits. Senate President Steve Morris indicated that will happen.
House Republicans’ pressure play, which cut off debate of the bill in order to push it through before the Senate could debate and vote on the tax compromise bill, infuriated Democrats.
“Through the tyranny of a majority, they can silence dissent in an instant, ramrod their plans through regardless of the merit of it,” said Rep. Nile Dillmore, D-Wichita. “And if you can do it on this, you can do it on anything. What we witnessed today was some history being played out that will turn out, I think, to be a dark stain on the speaker’s legacy.”
Rep. Jim Ward, D-Wichita, said it’s not about the political procedures; it’s about the impact of the bill the House sent to the governor.
“This is a story about public schools not getting their cuts restored, people dying on the waiting list because there’s no money, public safety at risk when we’re already shipping prisoners all over the state,” he said. “This is about the people of Kansas being put at risk.”
How they got here
Brownback opened the legislative session with a proposal to eliminate income taxes on 191,000 businesses, lower rates for individual income taxpayers and replace much of the lost revenue by eliminating a wide variety of tax credits and deductions.
That quickly proved politically impossible because of the outcry over eliminating credits and deductions, which would have forced poor Kansans to face an effective tax hike while benefiting businesses and the wealthy.
House Republicans drew up their own plan. Meanwhile, Brownback’s plan lingered for weeks, awaiting a hearing. Later in the legislative session, a Senate tax committee voted to save several of the most popular tax credits and deductions while stripping away Brownback’s proposal to cap the growth of government spending at 2 percent a year and channel any additional revenue to more tax cuts.
That made the projected cost of the bill balloon. When it reached the full Senate, senators initially rejected it. But several Republicans switched their vote after being pressured by the governor’s administration; several said they did so only so the Senate could open negotiations on a tax-cut compromise with the House.
At the time, Senate leaders said they didn’t believe the House would approve such an expensive plan.
But Wednesday, Rep. Richard Carlson, R-St. Marys, urged the House to approve the major tax-cut bill after he heard the other plan he helped negotiate might be rejected.
“The Senate informally told us they were going to kill the conference committee report and not allow any tax reform or discussion to take place,” he said.
Asked about the projected deficits, Carlson dodged the question and said it’s the Senate’s bill.
“Now, if they are serious about having good tax policy in Kansas, we will negotiate a tax conference committee,” he said.
As the House moved toward concurring with the original Senate bill, conservative senators went into stall mode to keep the Senate from voting down the conference report, which would have sent it back to committee.
Under the pretext of explaining the bill, the conservative senators told lengthy stories about their children and others who could be helped by lower taxes.
When Senate vice president John Vratil interrupted and tried to push forward on a vote on the bill, Senate President Steve Morris agreed and ruled the conservative lawmakers were out of order.
The conservatives appealed Morris’ ruling and, on the vote on the appeal, ate up more floor time explaining their votes and joining in each others’ explanations of their votes.
The stall worked.
Before the voting was completed, Morris announced that the House had voted to concur on the original Senate bill and declared the Senate’s debate moot.
After the meeting, he said it would be irresponsible of the governor to sign the bill that passed out of the House.
“If you look at that kind of deficit, it would be devastating to education, to corrections, to our social services, go on down the list,” Morris said. “Our total budget is something like $6.2 billion. To have a deficit of $2.7 billion, that would be very devastating.”
Morris said he didn’t know whether the conference committee’s compromise bill would have passed the Senate or not. But he said the Senate passed the original bill “at the urging of the governor so we could have something in conference” with the House.
“It was unusual to have a concur on that kind of tax bill,” he said. “It puts the state in jeopardy, long term.”
What’s in the bill
The bill would reduce income taxes by $847 million in the 2014 fiscal year and by $3.8 billion over five years.
It would immediately eliminate nonwage income taxes for 191,000 businesses classified as limited liability companies, subchapter S corporations and sole proprietorships. It would collapse Kansas’ three tax brackets into two; a married couple’s first $30,000 of income and a single filer’s first $15,000 of income would be taxed at 3 percent and income above that at 4.9 percent.
It would increase the standard deduction from $4,500 to $9,000 for single head-of-household filers and from $6,000 to $9,000 for married couples who file taxes jointly.
Although the bill retains the earned income tax credit that helps the working poor and the popular home interest mortgage deduction, it eliminates about 20 other credits, including the food sales tax rebate provided to low-income families.
The bill also allows six-tenths of a percent of the 1 percent sales tax increase approved 2010 to expire, dropping the state sales tax rate from 6.3 percent to 5.7 percent in July 2013.
But it also includes what equates to a tax increase for oil drillers by eliminating a two-year exemption on severance taxes and capturing severance tax on any new oil fields where pumping is in excess of 50 barrels a day.
That’s expected to generate more than $170 million over five years, somewhat mitigating the loss of state revenue from the tax cuts.
Overall, projections, which researchers expect to change slightly, show the plan will cut state revenue by $3.7 billion over five years.