Brownback: Tax plan expected by year's end

05/21/2011 12:00 AM

05/21/2011 1:18 AM

LECOMPTON — Gov. Sam Brownback signaled Friday that he expects a plan for overhauling the Kansas tax system — and cutting income taxes — to emerge from his administration by the end of the year.

Brownback said that his administration has started studying tax proposals and that a plan would be finished this year.

The timing would allow legislators to consider a plan during their next annual session. Brownback, a Republican, has said repeatedly that he thinks reducing income taxes will spark economic growth, keep residents from leaving and lure people from outside the state.

"I think there's a combination of things that need to be looked at, but to me the tax that's one of the most sensitive for economic growth is the state income tax," Brownback said after an event in Lecompton. "To look at the total picture is what we want to do, with an eye toward getting the state income tax down."

The Legislature has large Republican majorities in both chambers, but GOP leaders disagree about how quickly to move on cutting taxes. House Republican leaders are eager to lower income taxes, but their less conservative Senate counterparts are wary because of the state's ongoing budget problems.

Democratic leaders argue that the state needs to overhaul its tax system to make it fairer, but their concerns have focused on closing exemptions to the state's sales tax and reconsidering past business tax cuts to bolster state revenues — and government programs.

The budget approved by legislators this year cuts general state aid to public schools by 5.6 percent, or $232 per student, as Brownback had proposed. Also, the state cut its overall spending about 6 percent for the fiscal year that begins July 1.

"We need to look at restoring some of the very deep, painful cuts we have made," said House Minority Leader Paul Davis, D-Lawrence.

Brownback acknowledged that the move toward overhauling the tax system and cutting income taxes will be tempered by budget concerns.

But he added, "We've got to get a better growth atmosphere."

Brownback said Revenue Secretary Nick Jordan and Commerce Secretary Pat George, both former legislators, are involved in the discussion, but he said he's going to bring "leading thinkers" on tax issues from both Kansas and around the nation into it. He said he's not sure whether he'll establish a formal study commission, and he encouraged legislative leaders to consider their own study this summer and fall.

The governor said state officials see Kansas residents migrating to states with lower income taxes — or, like Texas, no income tax — and Kansas gains residents from higher-tax states.

This year, lawmakers approved Brownback's plan to declare 50 of the state's 105 counties "Rural Enterprise Zones" and exempt anyone who moves into them from outside Kansas from state income taxes from 2012 through 2016.

Brownback also persuaded legislators to rewrite income tax laws to help corporations after they buy new machinery. The legislation boosted the deduction that companies and partnerships can take each year for the decline in the value of their machinery.

But conservative Republicans want to go further. The House passed a plan this year to lower income taxes whenever state revenues grow, but the measure stalled in the Senate.

Under the plan, after each fiscal year ends June 30, the state would calculate the percentage growth in its major tax sources. Then, it would cut individual and corporate income tax rates by that percentage. The top corporate income tax rate could drop over time from 7 percent to 3.5 percent, but individual income taxes could eventually be phased out.

Each year's cuts would become permanent, but if the state's revenues were flat or declined, there would be no reductions for the following year.

House Speaker Mike O'Neal, R-Hutchinson, said he and other House members "really want to push" the plan next year.

"That would be great if the governor would facilitate that," he said.

But Senate President Steve Morris, R-Hugoton, doesn't see the House plan having enough support to pass.

"I don't think that we're at that point," he said. "It was not exactly well received."

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