TOPEKA — A miscalculation of the projected impact of Republicans sweeping tax cut plan has dramatically increased the potential deficit the plan would create for Kansas.
New numbers show a deficit of $712 million once nonwage income taxes for businesses are eliminated, individual income rates are dropped and a variety of other adjustments go into effect, according to new projections by the Department of Legislative Research.
This is the third major change to projected costs, and it comes at a crucial juncture as House and Senate negotiators debate tweaks to the plan aimed at making it affordable for the state while providing meaningful tax reductions for businesses and individuals.
“This plan is still totally upside down,” said Baldwin City Democrat Sen. Tom Holland, who is on the tax conference committee.
Holland also thinks the projections on sales tax growth may be too optimistic and set the state up for deeper deficits than projections show, which could limit the state’s ability to pay for core services.
Wichita Republican Sen. Les Donovan, a leader on the tax conference committee, said Wednesday morning that he hadn’t seen the new projections yet.
The change in projections comes after researchers didn’t properly calculate the impact of six-tenths of a percent reduction in sales taxes in July 2013. That error has a compounding effect as the fiscal impact is calculated through the years.
Last Friday, legislative researchers, who have been asked to rapidly calculate figures on an evolving tax plan, projected the proposal, as it stood then, would put the state in a $910 million hole once it was in full effect in 2018.
Then researchers on Monday dialed up the projected increase in sales tax revenue from 3.75 percent to 4 percent and adjusted the projections to account for two other changes to the plan, leading to a new projection showing a $160 million deficit when the plan is in full effect.
The projections play a key role for lawmakers who are deciding whether to back the tax-cut plan, which is strongly supported by Gov. Sam Brownback. Brownback’s plan, as presented at the start of the legislative session, would have cost the state roughly $90 million. But it proved politically unpopular because it paid for the tax cuts by eliminating several popular tax credits and deductions that benefit people in poverty and homeowners.
A version of Brownback’s plan was drastically changed by a Senate tax panel more than a month ago. The Senate then defeated the plan only to reconsider it and pass it after Brownback administration officials pressured senators to advance it to allow for negotiations with House members who had approved their own tax cut plan.
Since then, a six-member conference committee has been negotiating differences between the two plans and adjusting that proposal in hopes of making it affordable so that it can draw significant political support.
But moderate Republicans in the Senate and Democrats have said property tax reductions are a higher priority, and they’ve questioned whether Kansas really has a significant income tax problem.
Meanwhile, the Kansas Chamber of Commerce and other groups are strongly backing the elimination of income taxes as a way to provoke growth in the state and become more competitive with nearby states.
Senate leaders have said that negative ending balances in the state’s budget would likely be a deal-killer for the plan.
But conservative Republicans note that the projections don’t project any of the growth that they expect to occur when businesses have more money to invest in their operations and potentially hire new employees that bolster state sales and property tax revenue.