House Republicans presented a compromise Wednesday on one of this year’s hottest political issues in Kansas: whether to extend a recession-era six-tenths-of-a-cent sales tax to help pay for income tax cuts.
In a proposal that broke several days of legislative gridlock, Rep. Richard Carlson, R-St. Marys, pitched a plan to let half of that sales tax expire in July, when the original was scheduled to expire. Revenue from the other half of the sales take hike would pay for state services.
“This offer comes to the middle of the table,” Carlson said. “We’re looking at reducing the overall tax burden for the people of Kansas.”
Senate President Susan Wagle, R-Wichita, has firmly backed the Senate’s plan to indefinitely extend the six-tenths-of-a-cent sales tax, which would keep the state’s rate at 6.3 percent while further dialing down income tax rates. But she said she’s taking the House’s proposal seriously.
“The House just for the first time said, ‘We’re willing to vote for a sales tax,’ ” she said after reviewing the proposal. “And, for me, voting for three-tenths is the same as voting for six-tenths, politically. So I’m trying to understand their position.”
Senators will now discuss the compromise plan before returning to the bargaining table again on Thursday. If negotiators can agree on a compromise, it will go to the House and Senate for a full vote before advancing to Gov. Sam Brownback.
In addition to extending half of the temporary sales tax hike, the House proposal would follow up on last year’s income tax cuts and trim rates from 3 percent for the lower-income bracket and 4.9 percent for the upper bracket to 2.7 percent and 4.9 percent in 2014 and 2.7 percent and 4.8 percent in 2015. Those rates would drop to 2.1 percent and 3.8 percent by 2018.
Starting in 2018, any growth in state revenue beyond 2 percent would be channeled toward more income tax reduction.
Meanwhile, all tax deductions, including the home mortgage interest deduction, would lose their value as rates fell. All deductions would be cut by 24 percent later this year, 35 percent in 2014, 40 percent in 2015 and 60 percent by 2017.
For most homeowners, the reduction in income taxes would outweigh the declining value of the home mortgage deduction, said Luke Bell, a lobbyist for the Kansas Association of Realtors.
“I would venture to guess that for 99 percent of taxpayers, this phase-out is going to result in net tax relief,” he said.
The House’s compromise would restore part of the food sales rebate eliminated in last year’s tax cut. And it would cut the standard deduction for married couples from $9,000 to $6,500, a move that comes just a year after Brownback approved an increase in standard deductions.
This year’s tax proposals follow last year’s major income tax cuts, which eliminated nonwage income tax for more than 90,000 small businesses and farms while lowering rates for individuals. Those deep cuts have led state officials to project that lawmakers would have to make painful cuts to state services because of the steep drop in state income tax revenue.
Brownback and his conservative allies now are trying to stabilize the state budget while providing more tax relief. Between 2014 and 2018, the new plan would bring in nearly $500 million in additional revenue.
Rep. John Edmonds, R-Great Bend, called it a tax increase.
“I did not come back from six years of retirement to increase anyone’s taxes,” he said. “I will be voting no.”
Rep. Dennis Hedke, R-Wichita, said he likes the compromise and thinks it gives the House and Senate more flexibility to reach an agreement. He said the sales tax isn’t a hot button issue in his east Wichita district.
“I’ve not had one constituent tell me, ‘Please remove the sales tax because it’s going to really affect my livelihood or my ability to move forward as a citizen,’ ” he said. “It would be a benefit to have a reduction. And if we can get to a midpoint, I think that’s going to be good.”
But even with the new revenue, projections show the state would start eroding its savings account from its projected $631 million this year to $16 million in 2018, an amount that could be significantly altered by economic upturns or downturns or by a pending state Supreme Court decision on whether the state spends enough on public education.
The House’s proposal also banks on a 4 percent budget cut to higher education, which state universities say could kill their momentum and lead to staff reductions or tuition increases.
Democrats, who have called last year’s income tax cuts “reckless,” immediately balked at the House’s proposal.
They have been locked out of the private meetings between top GOP leaders in recent days, and they weren’t invited to joint meetings of House and Senate Republicans to discuss the tax cut plan.
Rep. Tom Sawyer of Wichita, the House’s chief Democratic tax negotiator, said he’s upset that Republicans have made no effort to repeal what he called the unfairness in tax policy approved last year that lets corporations, doctors and lawyers pay no income taxes, even though they make millions.
“That’s just unfair,” he said. “Widows that get the food sales tax refund won’t get it anymore. I don’t think Democrats can support it. It might be slightly better than some of the other stuff we’ve seen. But it’s still pretty bad.”
It’s unclear whether the tax compromise could pass the House, even if the Senate agrees to move forward with it, said Rep. Scott Schwab, R-Olathe, who is one of three House tax negotiators.
“Right now, it’s roll the dice and say, ‘Come on, seven,’ ” he said.