The prospects for sweeping income tax reform appeared dead for a couple of hours Wednesday.
But after initially killing a heavily altered version of Gov. Sam Brownback’s tax cut plan, nine senators changed their votes and revived the plan at the urging of Brownback and his staff.
That opens the door to tax reform negotiations between the House and Senate next week that could determine whether property taxes or income taxes will be reduced.
The conservative House appears poised to push for a cap on the growth of government spending to buy down tax rates, and the moderate-controlled Senate is hedging toward channeling $45 million a year toward property tax relief, a move it easily passed Wednesday.
Sen. Jay Emler, R-Lindsborg, who is the majority leader, said the Senate’s about-face on Brownback’s plan was intended to show that the Senate is focused on property taxes but willing to talk about income taxes.
But the politics of the issue were visible as Brownback’s staff kept an eye on the debate, chatting up lawmakers openly and behind the scenes.
Sen. Carolyn McGinn, R-Sedgwick, said she was told by Senate leaders that Brownback’s office had applied a lot of pressure to get them to reconsider the bill.
McGinn was among those who opposed the bill earlier Wednesday in a 20-20 vote that killed Brownback’s plan.
But she and eight others changed their vote when the Senate abruptly reconsidered the bill. Others included Republican Sens. Pete Brungardt of Salina, Jay Emler of Lindsborg, Terrie Huntington of Fairway, Dick Kelsey of Goddard, Jeff Longbine of Emporia, Steve Morris of Hugoton, Ruth Teichman of Stafford and Dwayne Umbarger of Thayer.
McGinn said she decided that she wanted a bill to bring to a conference committee, where select members of the House and Senate negotiate the differences between their proposals.
Senate President Steve Morris declined to comment about whether Brownback’s office was involved in the discussions that led to the revote.
“There was a lot of interest in making sure we had something to go to conference,” he said.
Brownback’s office confirmed he and his staff called several senators to discuss “the importance of a pro-growth tax plan.”
Morris said the elimination of nonwage income tax for most businesses is in both Senate and House bills and “might” be a component that could pass both houses.
He said the House will have the option to agree with the Senate plan and forward it to Brownback’s desk. But, he said: “That won’t happen.”
One aspect guarding against that is the $800 million price tag on Brownback’s plan now that it has been drastically altered.
Morris expects the House and Senate to appoint conference committees and negotiate a bill both bodies can accept.
Senate Minority Leader Anthony Hensley, D-Topeka, said the Senate failed Kansans by changing its vote.
“I’m appalled that Governor Brownback resorted to backdoor arm twisting to get his tax plan through the Senate this morning,” he said in a prepared statement.
Brownback put it another way in a prepared statement.
“The Senate took an important step towards growing the Kansas economy and creating new jobs,” he said. “We are one step closer to hitting the accelerator on the emerging Kansas economy. We must remain focused on the just cause of pro-growth tax reform – jobs and a brighter future for our children.”
Brownback’s plan initially eliminated dozens of state tax credits and deductions and continued indefinitely a 1 percent sales tax increase that many lawmakers had promised to let expire in July 2013.
Those moves would have helped finance reductions to individual income tax rates and the elimination of nonwage income tax for limited liability companies, sub-chapter S corporations and sole proprietorships. It left the corporate tax rate as is.
Brownback’s plan then would have capped the growth of state spending at 2 percent and used anything beyond that to dial down income tax rates as long as the state could boast an ending balance of 7.5 percent of total spending.
But a Senate panel voted to remove the 2 percent cap, effectively forcing the Legislature to take action if it wanted to reduce individual income tax rates beyond the modest first-year reductions in Brownback’s plan. The panel also voted to keep the earned income tax credit that benefits the working poor – instead of deleting it as Brownback proposed.
When the plan hit the Senate floor Tuesday, McGinn offered an amendment to let six-tenths of the sales tax increase expire as she and many others had promised. And Sen. Vicki Schmidt offered an amendment to save all the credits and deductions that would have been axed under Brownback’s plan, including the popular home mortgage deduction.
Those moves made the plan far more expensive – from the $105 million estimated price tag as it left the Senate committee to, as one official put it, about $800 million.
Wichita Republican Sen. Les Donovan said he was disappointed with how the Senate weighed down Brownback’s plan. But he said he’s optimistic about some form of tax reform.
“Are we going to get everything the governor wanted?” he asked. “Probably not.”