TOPEKA – Gov. Sam Brownback’s administration appears poised to propose a continuation of a temporary sales tax hike and further reduce individual income tax rates.
The administration will reduce overall state spending while proposing a continuation of the 0.6-cent sales tax that is set to expire next July, Budget Director Steve Anderson said at a forum last weekend.
Many conservative lawmakers opposed the sales tax, which was approved in 2010 as lawmakers grappled with drastically reduced revenues stemming from the national recession.
But many favor more reductions in individual income tax rates.
“What you’re going to see is a further reduction in the personal income tax rate,” Anderson told conservative lawmakers and lobbyists at a retreat in Topeka.
He said most people have already heard about the potential continuation of the sales tax rate.
“I think that’s really a trigger we need to use,” he said. “The governor wants to apply that revenue to continue to buy down the individual income tax rate."
Anderson acknowledged it’s going to be a tough call for lawmakers.
“I think that for a lot of conservatives, that’s hard to swallow,” he said. “And I certainly understand that, especially since many of you ran on a ‘we’ll make this sunset’ agenda.”
Brownback has hinted at continuation of the sales tax, as well as elimination of some popular tax deductions and credits. But Anderson’s comments may be the clearest indication yet that Brownback will use the allure of even lower income tax rates to justify continuing the sales tax.
Kansas sales taxes are slated to drop from 6.3 percent to 5.7 percent next July. Income tax reductions that go into effect Jan. 1 are projected to create a $295 million per year shortfall, and that’s assuming that all of the state’s reserves are spent down.
That’s likely to force significant budget cuts, although Brownback has pledged to protect education and public safety from cuts. The 0.6-cent sales tax could generate about $250 million per year if it is continued.
“That will be a tough sell,” said newly elected Senate President Susan Wagle, R-Wichita. “Clearly, in order to make that happen, the people of Kansas will have to see a personal benefit.”
Wagle said she could support it conceptually. But she said she would need to see some numbers and a plan to know whether reducing individual income taxes would provide that benefit.
Too many wealthy people in east Wichita have moved to no-income-tax states, Wagle said.
“We’re the losers for that,” she said. “I’ve seen the impact of high income taxes.”
‘Regressive tax policy’
Wichita Democratic Rep. Nile Dillmore, who was House Democrats’ chief tax policy negotiator during the past legislation session, said the proposal would be a tough sell with freshman legislators who ran campaigns promising to fight for lower taxes.
“That tax is scheduled to expire on June 30,” he said. “If it doesn’t, that is a tax increase from June 30 on.”
Dillmore also noted that organizations such as the Kansas Chamber of Commerce opposed the increased sales tax and said it would hurt the economy in 2010.
Low-income tax filers typically spend a larger percent of their income on sales taxes than people with more money.
“Anything that he does to reduce personal income tax rates is going to have to come at the expense of a regressive tax policy that creates greater tax burden for lower income tax filers,” Dillmore said.
Senate Majority Leader-elect Terry Bruce of Hutchinson said the idea of continuing the sales tax rate got 18 votes in the 40-member Senate in 2012, and he said the sales tax is probably necessary to further cut income taxes.
“Politically, it was OK,” he said. “People don’t like income taxes.”
He acknowledged that something would have to be done to limit the disparity in benefits between the rich and poor. He said he would support keeping an altered version of the earned income tax credit and retaining the food sales tax credit that pays back the taxes low-income families spent on qualifying groceries.
“You can’t isolate everybody who is less fortunate from taxation, but you can do things to soften the blow,” he said. “We have to be cognizant of the fact that we have a number of Kansans who are less fortunate and that the sales tax, by its nature, is going to be regressive.”
Brownback spokeswoman Sherriene Jones-Sontag declined to address Anderson’s comments or to discuss how income tax rates may be dropped. But she noted Brownback’s original tax plan left the 6.3 percent sales tax in place to help buy down income tax rates to zero.
The plan called for any revenue growth beyond 2 percent to be used to cut income tax rates.
Brownback’s expansive tax plan also sought to eliminate some popular tax credits and deductions, including the home mortgage tax deduction that benefits homeowners and the earned income tax credit that helps poor working families.
But lawmakers, including conservative Republicans, balked at the plan during the last legislative session.
Competing tax-cut plans morphed dozens of times over the legislative session before the Senate finally approved a drastically altered version of Brownback’s plan in hopes of further negotiation. But after House Republicans decided the Senate probably would kill other plans, it quickly agreed with the altered tax cut plan and sent it to Brownback, who signed it into law.
Wichita Sen. Les Donovan, who chairs the Senate Tax Committee, said continuing the sales tax increase could be problematic.
“I don’t think you’re going to get the votes for it,” he said Tuesday. “Most of those who were elected are strong, staunch conservative Republicans.
“But the governor is pretty persuasive in his arguments,” he said.