After months of rhetoric, conflicting studies and wide-ranging projections, Gov. Sam Brownback’s big push to lower state income taxes comes to a critical vote Wednesday afternoon.
Whatever the Senate decides to do – shoot down the plan or advance it to the House where passage is all but assured – will likely be spun into campaign ads that fill mailboxes, inboxes and airwaves for months to come.
Wednesday’s highly anticipated Senate debate focuses on a proposal to phase out nonwage income taxes for many businesses and cut rates for individuals. It also includes some property tax relief, and it allows a six-tenths of a cent sales tax to expire as scheduled.
Senate leaders have voiced skepticism about whether income tax cuts will produce the economic growth conservatives predict, and they’re concerned it could eliminate so much revenue that the state would have to drastically cut funding for things such as education.
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The tax-cut discussion is the cornerstone of Brownback’s agenda this year. It has backing from the Kansas Chamber of Commerce, which has a political action committee that is supporting the campaigns of conservative Republican Senate candidates who are challenging moderate Republican incumbents.
Sen. Les Donovan, R-Wichita, a prominent supporter of the cuts, said he doubts the Senate will approve the bill.
“A vote against this is a vote against every income taxpayer in Kansas getting a fairly good state tax reduction,” he said.
Initial projections showed the plan could create a deficit of more than $700 million in 2018, when the plan is fully in effect. But House and Senate negotiators — who had initially dialed down individual income tax rates to 3 percent on the first $30,000 of income for married couples and 4.9 percent for income over that — decided instead to cut the rate for the top brack to 5.5 percent initially, then gradually lower it to 4.9 percent in 2017. That led to new projections showing a $165 million budget surplus in 2018.
The different projections make many lawmakers uneasy, and some think even the big deficit numbers may underplay the price tag and how it could lead to dramatic cuts in state services.
Senate Majority Leader Jay Emler, R-Lindsborg, said he thinks the deficits projected by legislative research, which assume a 4 percent growth rate for state revenue, may be too optimistic.
“When I was chair of Ways and Means, I was very conservative on growth,” he said. “I turned out to be overly optimistic. So I tend to be a little more conservative than what I see in these models. If you run a more conservative profile on it, it is actually problematic.”
Senate Majority Leader Jay Emler, R-Lindsborg, said he expects a close vote.
If the Senate rejects the cuts, House Speaker Mike O’Neal, R-Hutchinson, has said there may be enough votes in the House to approve a much more expensive plan. That plan then would go straight to Brownback, who appears inclined to sign it.
That plan, which could cost $3.7 billion over five years, is a heavily altered version of the governor’s original tax-reduction proposal. Senators removed from Brownback’s original pitch a 2 percent cap on the growth of government spending, and they reinstated a wide variety of tax credits and deductions that Brownback wanted to eliminate to simplify the tax code and reduce the impact of the tax cuts on state revenue.
The changes led to a much larger price tag – one that Emler and others thought was so large that no lawmaker would forward it to the governor’s desk. With that in mind, Emler and other Republicans in the Senate switched their initial votes to reject the bill and approved it in order to create an opportunity to negotiate a more responsible proposal with the House, which had passed its own tax-cut plan.
Projections created by legislative researchers earlier this month show that the more expensive plan would leave the state with a $270 million deficit in the 2014 fiscal year, the first full year of the tax cuts. That deficit would grow to $2 billion by 2017, according to the projections.
Emler said it would be a shame if the House concurred on the bill.
“It will devastate all of state government, and I do mean everything,” Emler said. “Education and everything else.”
Conservatives note that the tax-cut projections don’t take into account any growth the tax cuts could inspire. Moderate Republicans and Democrats note the projections also don’t take into account the large number of businesses they believe would reorganize to avoid taxes under the new cuts.
Brownback’s spokeswoman, Sherriene Jones-Sontag, said Brownback has analyzed the plan and believes he could make it work.
“Between fiscal responsibility and expected economic growth, the governor and legislature would make the Senate bill work,” she said via e-mail.
But Brownback hopes that the less-expensive, negotiated bill is the one to arrive on his desk.