House passes plan to cut income taxes, abolish sales tax on groceries

03/25/2014 11:32 AM

08/08/2014 10:09 AM

House lawmakers tentatively approved a Republican-backed tax package that could trim individual income tax rates, eliminate income taxes for many businesses and do away with state sales tax on groceries.

The proposal – an alternative to Gov. Sam Brownback’s controversial tax pitch – went through a grueling five-hour debate Tuesday that included at least 15 amendments and passionate pleas to retain tax credits for the working poor and to drive down tax rates to create jobs.

It passed in a 68-53 vote. The House will vote on it again today before forwarding it to the Senate, where it will likely face a fierce debate and proposed changes.

House Speaker Mike O’Neal, R-Hutchinson, said he’s hopeful the plan will be more palatable to the Senate than tax reform bills in prior years.

The bill faced significant opposition in debates earlier this year because it delayed long-term transportation projects and capped the growth of state spending at 2 percent each year, channeling anything beyond that toward income tax rate reduction.

Rep. Richard Carlson, R-St. Marys and chairman of the House Tax Committee, changed that by maintaining funding for transportation projects and increasing the cap to 3 percent.

Now the bill would cap the growth of government spending at 3 percent per year and use anything beyond that to drive down individual income tax rates, with faster rate reduction for the lowest income bracket.

“The working poor were taken care of in the bill today,” Carlson said, noting that all Kansas income earners would see a reduction under the proposal.

Democrats and many advocacy groups dispute that notion. The bill cuts in half the state’s portion of the earned income tax credit that benefits the working poor.

That provides about $18.5 million to Sedgwick County residents, according to calculations provided by Rep. Ann Mah, D-Topeka. She said the credit helps keep the working poor from slipping deeper into poverty and that the money helps them pay off debts and make small, but important, purchases.

Meanwhile, she said, it seems Kansas lawmakers are intent on helping the rich get richer.

"It’s just let the good times roll for the CEOs and rich folks," she said.

Mah’s amendment to maintain the earned income credit failed in a 52-67 vote.

Democrats also say capping spending while eroding state revenue is a recipe for reduced state services and further pressure on local governments to raise property taxes to adequately fund schools and other core services.

“Wouldn’t it be nice if we could realistically absolve everyone of income tax liability and our schools would be great and our businesses would be thriving?” House Minority Leader Paul Davis, D-Lawrence, said. “That is a mirage, and we know it. We cannot do both. We cannot fund our schools and eliminate the income taxes.”

O’Neal he said he expects people and businesses will spend the extra money, boosting other state tax revenues.

“We’re not expecting people will take the money that we allow them to keep in their pockets and to go out in the backyard and bury it in a can,” he said. “We expect it to be used for investments, for purchases.”

Grocery taxes

The debate took an unexpected turn when Rep. Jana Goodman, R-Leavenworth, proposed eliminating state sales tax on groceries. The move continues to tax alcohol, tobacco, candy and prepared food.

Her proposal came shortly after lawmakers rejected Wichita Republican Rep. Mario Goico’s proposal to eliminate food sales taxes in the three days leading up to Christmas and Thanksgiving.

Kansas is one of only a few states that tax food at the full sales tax rate. But it offers a tax rebate for families that make less than $35,400 a year.

Goodman’s amendment provides a valuable break to consumers in grocery stores. But cutting the food tax takes a $350 million-plus bite out of state coffers, which is expected to heavily erode the surplus Republicans had projected.

O’Neal said the rebate is the best way to address food sales taxes. He doesn’t expect the elimination of sales tax on food to survive as the bill moves forward.

An amendment by Rep. Marvin Kleeb, R-Overland Park, allows cities to collect their portion of food sales taxes.

A necessary change?

Some lawmakers see the House Republican plan as a viable alternative to the tax reform package Brownback unveiled in his State of the State Address after months of behind-the-scenes work.

Brownback’s plan included many similar ideas, such as capping the growth of state spending and using additional revenue to buy down income tax rates.

But lawmakers remain skeptical of the governor’s plan because it eliminates many popular tax credits and deductions, including the mortgage tax deduction, earned income tax credit and historic tax credits, all of which have powerful interest groups supporting them.

Brownback’s proposal remains in House and Senate committees awaiting action. He had little to say about the House tax plan shortly after the vote.

“We’ll look it all over; we’re moving the process forward … we need to do that,” he said.

Meanwhile, Rep. Scott Schwab, R-Olathe, said that the House tax plan may not be bold enough.

Income tax reductions in the plan approved by the House hinge on growth in state revenue beyond 3 percent. Schwab pitched an amendment that would eliminate income taxes by 2020 regardless.

“What we’ve done for the past 20 years doesn’t work,” he said.

Lawmakers voted the idea down in a 50-58 vote.

Rep. Bob Brookens, R-Marion, questioned whether Kansas should try to march its income tax rates down to zero when the money could be better spent paying off debts, including the massive liabilities in the state employee pension system and bonded highway projects.

“I think it makes no sense for us in Kansas,” he said.

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