TOPEKA – Senators stripped away key elements of Gov. Sam Brownback’s tax-cut proposal Tuesday while leaving modest income tax reductions for wage-earners and eliminating non-wage income taxes for thousands of businesses.
Senators plucked out Brownback proposals to continue a temporary sales tax increase and eliminate many tax credits and deductions. The governor had proposed those moves to pay for income tax rate reductions.
The Senate changes are expected to dramatically increase the cost of the plan. It’s unclear exactly how much, though one official pegged the cost at $800 million. Brownback’s plan initially cost an estimated $90 million.
The ballooning cost may prompt some senators to oppose the bill during a final vote Wednesday.
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“I think the attempt was pretty blatant to just destroy it,” said Sen. Les Donovan, R-Wichita. “The group in the majority doesn’t like what’s in the governor’s plan and where he’s trying to take the state, which I disagree with. I think he’s trying to do something that will be long-range good for the state and we need to listen to him.
“If it fails tomorrow, we may be done for the year on tax policy other than some smaller little deals,” Donovan said. “We’re in a very strange spot right now.”
Senate President Steve Morris, however, said nothing is dead until the last gavel sounds.
“People are innovative,” he said, noting that a variation of Brownback’s plan awaits a vote in the House and could be maneuvered to force a vote in the Senate.
Morris, along with other moderate Republican senators, said most Kansans want property tax reductions more than income tax cuts.
“It’s not that we don’t want to be competitive with states around us. We certainly do,” he said. “But we’re also conscious of our constituents’ wishes.”
To that end, senators advanced a plan to send $45 million a year to local governments for property tax relief, essentially reviving funding for a program that lawmakers stopped funding years ago. That bill will also face a final vote today.
Brownback’s plan, as amended by a Senate committee, reduces Kansas’ three income tax brackets to two and sets rates at 3 percent for the first $30,000 of income and 4.9 percent thereafter – down from the current 3.5 percent, 6.25 percent and 6.45 percent. It eliminates all non-wage business income for limited liability companies, subchapter-S corporations and sole proprietorships, essentially most Kansas businesses.
Many had doubted the prospects of Brownback’s sweeping income tax reduction plan in the Senate, where moderate Republicans hold sway. Tuesday seemed to confirm that as lawmakers positioned to favor tax reductions but not as prescribed by the governor.
Amendment after amendment dug into the proposal.
One offered by Sen. Carolyn McGinn, R-Sedgwick, lets part of a 1-cent sales tax increase expire July 1, 2013, as several senators had promised they would do when they approved it in 2010. Brownback had proposed letting that continue and using the money to dial down income tax rates.
The state sales tax would drop from 6.3 percent to 5.7 percent in mid-2013 under the amendment.
“I think people are watching this to make sure we keep our promise on this,” McGinn said.
Others, however, said retaining that tax could be justified because it would help drive down income tax rates, which they say is a better way to spur economic growth.
The sales tax expiration is expected to increase the cost by $251 million in 2014.
That amendment passed 27-12.
Another change offered by Sen. Vicki Schmidt, R-Topeka, retained a variety of income tax deductions and credits — including a deduction for interest payments on home mortgages — that Brownback had planned to eliminate to finance income tax reductions. Schmidt said that move would increase the cost of Brownback’s plan by $451 million next year. It passed 21-19.
If the bill is approved today, members of the House and Senate would likely meet to negotiate differences between the heavily altered bill in the Senate and the House’s version, which includes many key provisions of Brownback’s plan but also eliminates sales tax on groceries, which could prove problematic because of the cost.
Secretary of Revenue Nick Jordan said the Senate’s moves have dramatically increased the cost of the plan.
“It’s disappointing,” he said. “We certainly wanted a pro-growth bill.”
But he said he remains resilient and hopes lawmakers will restore key aspects of the governor’s proposal as they continue to debate a series of tax-cutting bills that could ultimately be resolved in negotiations between House and Senate leaders.
“We’ll see what they vote out or don’t vote out tomorrow,” he said. “I don’t know what the vote will be.”