TOPEKA – Competing plans to cut taxes advanced in the Kansas Legislature on Wednesday.
A Senate committee removed several controversial aspects from Gov. Sam Brownback’s sweeping tax reform plan, then approved it.
Meanwhile, representatives approved a House Republican plan.
Both plans aim to cut income taxes for individual and eliminate income taxes for many businesses.
The House plan also would abolish the sales tax on groceries and let part of a temporary sales tax increase expire as scheduled this summer. The governor’s plan would keep make the temporary sales tax increase permanent and eliminate some tax credits and deductions.
The nearly simultaneous actions bump one of the dominant themes of this year’s legislative session toward critical debates in the Senate. where moderate Republicans who have been skeptical of sweeping tax cut plans hold sway.
Several senators say it’s unclear which plan will reach the governor’s desk and how much the plans might change in order to get a majority of lawmakers’ support.
Almost everyone expects a complicated debate of the governor’s plan.
“How will this bill end up when we’re all done and if it goes through the Senate and goes to conference committee? Nobody knows,” said Wichita Republican Sen. Les Donovan, who chairs the Senate Assessment and Taxation Committee. “I certainly don’t know. I just know that it will be different than the way it came out.”
It’s already different than what the governor had proposed.
The Senate Assessment and Taxation Committee voted to maintain the earned income tax credit that benefits low-income workers and historic tax credits that help spur redevelopment in downtown Wichita. Both would have been eliminated under the governor’s plan.
Donovan said the changes should make more lawmakers comfortable with the plan. He said those credits benefit people across the state and help spur investment.
“These all return money to the state,” he said.
The committee also removed the 2 percent cap on the growth of state spending; the governor had intended to use any revenue growth beyond that to further drive down income tax rates.
The change means individual income tax rates would initially be pushed down to 3 percent for those with an income of less than $15,000 and 4.9 percent for those making more than that.
Legislation would be required to cut income taxes further.
Brownback’s plan would have automatically dialed down the tax rate as long as the state had a 7.5 percent ending balance and had left over money after allowing for 2 percent growth in spending.
Secretary of Revenue Nick Jordan said he’s pleased the committee advanced the bill.
“Our goal is to get a bill out that creates jobs and grows the economy,” he said. “We’re happy with the progress that has been made.”
“Obviously the governor would like to continue to move down the income tax,” he added.
The committee also voted to retain angel investor tax credits, community service tax credits and the 529 education savings program. But the governor’s plan still would eliminate a variety of other tax credits and deductions, including the mortgage tax deduction that real estate agents statewide are lobbying to maintain.
It also would continue indefinitely the sales tax increase that many lawmakers approved on a temporary basis when faced with budget shortfalls. More than half of the increase, or .6 percent, had been scheduled to expire; the other .4 percent was to remain to fund long-term transportation projects.
Many legislators promised to let the sales tax expire July 1. So continuing that could be a key point of contention when the Senate debates the bill, perhaps next week.
“I’m really surprised the tax committee endorsed a permanent tax increase,” said Senate Minority Leader Anthony Hensley, D-Topeka. “I think that breaks the promise that we made to the people of Kansas when we told them that the 1-cent sales tax increase was only going to be temporary.”
Brownback’s plan still would still increase the standard deduction for individual tax filers from $4,500 to $9,000. And it would eliminate nonwage income tax for limited liability companies, subchapter S corporations and sole proprietorships.
That’s a key aspect of the House GOP tax plan as well. Conservative Republicans contend that the cut will let business owners retain more of their money to reinvest in their business and create jobs that draw more people into the state and spur more economic activity.
Democrats have said the proposal provides a loophole for wealthy folks to get wealthier.
As the House debated the bill Tuesday, Rep. Nile Dillmore, D-Wichita, said the plan has been pitched as a boon for small businesses.
“If you believe Cargill or Koch Industries are small businesses, that’s true,” he said.
The House 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.
It cuts in half the state’s portion of the earned income tax credit that benefits the working poor.
The House Republican tax-cut plan passed the House 68-56 on Wednesday. All area Republican lawmakers voted yes, except for Robert Brookens, Marion; John Grange, El Dorado; Don Schroeder, Inman; and Clark Shultz, Lindsborg, who voted no. All House Democrats voted no.