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GOP governors losing battles to pay for deep income tax cuts with expanded sales taxes Brownback ‘tax swap’ plan facing stiff opposition

  • Kansas City Star
  • Published Sunday, April 21, 2013, at 6:54 a.m.

Eliminating or slashing the income tax is a romantic idea for many politicians.

Getting there is much less dreamy.

Just ask Republican Kansas Gov. Sam Brownback and a handful of other GOP governors who want income tax cuts but propose paying for them by keeping or expanding sales taxes — sometimes called a “tax swap.”

One by one, Republican governors in Louisiana, Nebraska and Ohio find themselves losing battles over deep income tax cuts that required massive expansions of sales taxes.

“The speed with which these plans have fallen apart is as remarkable a trend as the speed with which they emerged,” said Matt Gardner, executive director of the liberal-leaning Institute on Taxation and Economic Policy.

Brownback’s fight isn’t over, but he faces a stiff test in persuading a legislature controlled by conservative Republicans to go along with his plan to keep a sales tax that’s supposed to expire this summer.

“We’re talking to people,” Brownback said, “and we’ll keep talking to folks.”

Brownback wants a six-tenths of a cent sales tax — approved in 2010 — to help make up for income tax cuts he signed into law last year and pave the way for future cuts. But he has run into political problems in the House, where many lawmakers voted against the sales tax or campaigned against it when they were elected in the fall of 2010.

So far, the House has been reluctant to go along with extending the sales tax, even casting a 120-0 vote this month against the renewal just hours before taking a monthlong break.

“This is a classic case of be careful what you wish for, you just might get it,” said Fort Hays State political scientist Chapman Rackaway.

Brownback “wanted all of these conservative allies in the Legislature,” Rackaway said. “Now that he’s got them, it looks like they’re even more conservative than he wants them to be.”

Facing resistance

Other governors are finding that it can be a chore to sell lawmakers on income tax cuts while simultaneously trying to offset the reductions with sales taxes.

Louisiana Republican Gov. Bobby Jindal, a much-talked-about 2016 potential presidential candidate, made a splash last week when he retreated from his plan to eliminate personal and corporate income taxes in favor of a higher and broader sales tax — a very different approach from Brownback’s plan.

Jindal wanted to raise the sales tax by 2.2 cents and start applying it to services such as accounting and engineering. His proposal set off fierce opposition, including from business interests typically aligned with Jindal.

The state’s influential business lobby, represented by the Louisiana Association of Business and Industry, opposed Jindal’s plan because it was just shifting the tax burden. The group said the plan was equal to a $500 million tax hike on business.

Jindal didn’t back off completely, however. He said he wanted to work with legislative proposals for eliminating the income tax, leaving it unclear how that might be paid for over time.

Other income tax plans face similar resistance.

In Nebraska, Republican Gov. Dave Heineman also struggled with traditional business allies over plans to eliminate the state’s personal and corporate income tax in exchange for eliminating hundreds of millions of dollars in sales-tax exemptions.

Critics said that switch would disproportionately hurt middle-class taxpayers who don’t pay as much income tax as the more affluent. The Nebraska Farm Bureau argued that the governor’s plan would effectively place new taxes on farming and ranching.

A legislative committee shelved Heineman’s tax plan in mid-February so it could take more time to consider the issue.

In Ohio, the House last week came up with a new plan to reduce income taxes, but far less aggressively than what was proposed by Republican Gov. John Kasich.

The governor originally proposed cutting the state personal income tax by 20 percent over three years. His proposal would have lowered the sales tax but applied new fees for lawyers, sports tickets and cable television.

In North Carolina, a proposal called for eliminating income taxes and replacing them with broader sales tax that would apply to services. The governor’s budget director said the idea would hurt the state’s economy and impose a tax on many sales transactions regardless of how much someone earned.

North Carolina lawmakers have since tempered their tax-cutting rhetoric and are now looking at a gradual reduction in corporate income taxes.

Unique situation

Brownback said that what’s going on in Kansas now is very different from what’s unfolding in Louisiana, Nebraska or Ohio. In fact, each state’s tax switch proposals differ markedly from the next.

“You’ve got to look at our unique situation here,” he said. “It’s a great opportunity to do something a lot of people believe is the right way to get growth happening.”

He notes support for extending the sales tax in the Legislature, namely from the Senate, which approved a tax plan that included keeping the sales tax on a 25-14 vote.

Brownback said his plan is crafted so it adds money for elementary and secondary education and keeps funding for higher education flat — the latter which is facing up to a 4 percent cut in the Legislature.

“This revenue package ties in with this budget package,” he said.

However, Brownback’s political problems are similar to what Republicans in other states face.

The powerful Kansas Chamber of Commerce, a Brownback ally that helped elect conservative Republicans last year, has opposed extending the sales tax. It has argued that raising more money from taxpayers should only come after further spending cuts are considered.

The group has endorsed a House plan to cut income taxes when revenue growth is more than 2 percent the previous year and lets the six-tenths of a cent drop off the sales tax.

Meanwhile, Democrats also have opposed extending the sales tax, saying it amounts to a tax shift onto less wealthy taxpayers and would hurt funding for schools and other state services.

The tax debate has put Brownback in the unusual situation of playing a moderating force because he knows that any deeper budget cuts could make him politically vulnerable when he’s up for re-election, Rackaway said.

But by the time the session ends next month, the governor will probably get what he wants, Rackaway predicted.

“Brownback put so many of these folks in office in the first place. They have personal and electoral loyalty to him,” Rackaway said. “The governor is someone they don’t want to oppose.”

To reach Brad Cooper call 816-234-7724 or send email to bcooper@kcstar.com

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