TOPEKA — Kansas wage-earners can expect to send less money to state government starting next year, after Gov. Sam Brownback signed one of the state’s largest income tax cuts in history into law Tuesday.
Brownback said the income tax relief will make Kansas more competitive and generate tens of thousands of jobs.
“My faith is in the people of Kansas, not its government,” he said. “I believe that people will do incredible things.”
Moderate Republicans and Democrats have decried the bill, which is estimated to cost $3.7 billion over five years and force the state to cut hundreds of millions of dollars in spending.
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"The recklessness of Governor Brownback’s actions are sure to result in deeper cuts to our public schools, more disabled Kansans left without critical services, and higher property taxes," said House Minority Leader Paul Davis, D-Lawrence.
The income-tax cuts collapse the state’s three tax brackets to two. Married couples filing jointly will pay 3 percent on their first $30,000 of income and 4.9 percent on earnings beyond that. Single filers will pay 3 percent on their first $15,000 of income and 4.9 percent on earnings above that. Currently, rates are 3.5, 6.25 and 6.45 percent.
The cuts are projected to put about $570 a year more in the pockets of a married couple with a child filing jointly and earning $65,430 after federal deductions, which is the state median. For a single parent with a child and an adjusted income of $20,000, the new law provides $43 more a year. And for a single taxpayer making $17,600, it leaves $27 more at their disposal, according to scenarios provided by the Department of Revenue.
The bill eliminates taxes on the profits business owners get from limited liability companies, subchapter S corporations and sole proprietorships.
It increases the standard deduction to $9,000. It had been $4,500 for single head-of-household taxpayers and $6,000 for married couples.
And it eliminates about 20 tax credits, including the food sales tax refund that benefits 365,000 single parents, people with disabilities and senior citizens who earn less than $35,400 a year. That refunded $53 million last year.
It also gets rid of the child and dependent care credit claimed by nearly 72,000 people who are responsible for children, disabled dependents and spouses.
“The best thing we can do for individuals in this state and particularly for somebody who is struggling is provide jobs and job opportunities,” Brownback said. “That’s what this does. And it’s a difficult tax cut to get through because it would be more popular to cut property taxes but it (property tax cut) doesn’t create growth.”
Debates over plan
The governor’s signature punctuates a wide-ranging debate about taxes in Kansas that dominated much of this year’s legislative session.
Lawmakers pressed throughout the past few months for a milder tax-cutting plan that wouldn’t force state government to cut spending so drastically, so fast. But many Republicans and Democrats rejected alternative proposals because they feared those plans would also force big cuts in state services.
The Kansas Chamber of Commerce pushed for income tax cuts, along with many other business groups.
Derrick Sontag, director of Americans for Prosperity-Kansas, said the tax cuts will boost the state’s economy and give tax relief to families and businesses.
“The move to lower the individual income tax is an acknowledgement of the undeniable fact that low income tax states achieve much higher levels of economic growth as compared to high income tax taxes,” he said. “Passage of this bill means Kansas can finally reverse the trend of stagnant population growth and taxpayers migrating to other states, all of which came about due to the tax-and-spend philosophy of the past.”
State analysts project the bill could force $242 million in cuts in 2014, and cause more than $2 billion in cuts over five years. Education represents roughly half of the state’s spending. Deputy Commissioner of Education Dale Dennis prepared an estimate of how schools would be affected if $1 billion were cut from school funding; it showed the Wichita school district receiving $108 million less.
Brownback’s administration, meanwhile, has said the cuts could generate nearly 23,000 new jobs beyond natural growth by 2020 and could draw almost 36,000 more residents to the state beyond normal growth.
The administration will gauge the success of the tax cuts based on those figures, Department of Revenue Secretary Nick Jordan said.
Brownback boasted that the state faced a $500 million projected deficit and that it now has a surplus of more than $500 million. He said economists predict continued growth.
“We’re going to be able to do this,” he said.
If the economy doesn’t expand, Brownback said, he would call for reduced spending – just as he would if the tax cuts were not in place. And he said he will work to rein in state spending even if the tax plan doesn’t force him to.
“We’re going to keep pruning at state government anyplace that we can,” he said.
But he said people won’t be cut off Medicaid, that the state will fund schools and that roads will be built.
The Kansas Economic Progress Council, a nonprofit group of businesses and chambers of commerce, estimates it will take more than 550,000 new jobs paying $50,000 a year by 2018 to pay enough taxes to fill the expected budget gap that year.
“That means Kansas employment would have to grow 50% over the next six years,” wrote Bernie Koch, the group’s executive director. “That’s over five times faster than Texas job growth over the last decade.”’
Michael Marvin, executive director of the Kansas Organization of State Employees, predicted the bill will cause financial disasters for the state.
"His tax plan is the height of political hypocrisy,” he said. “He talks about living within our means and spending wisely, yet with his signature he will oversee one of the largest budget deficits in the state’s history.”
A winding path to law
The bill Brownback signed took a strange path to his desk.
It stemmed from a proposal that he outlined in his state of the state address in January. But his proposal became politically unviable almost immediately because it proposed cutting many popular tax credits and exemptions, and it was projected to disproportionately hurt low-income Kansans while boosting cash flows for wealthier residents, particularly business owners.
When the governor’s plan moved through a Senate panel, senators voted to retain many of the credits and deductions Brownback wanted to cut. That drastically increased the cost of the plan.
Senators changed the bill even more when they debated it. Then they rejected the bill by a 20-20 vote in late March.
But Brownback’s administration pleaded with senators to approve the bill so that House and Senate negotiators could work out a better plan. Senators re-voted and approved it 29-11. Some senators say Brownback said he wouldn’t sign it.
When asked about the chances of the House approving it and the governor signing it at the time, Senate President Steve Morris said flatly, “That won’t happen.”
A less-expensive alternative plan emerged after weeks of negotiations. But House members feared the Senate might reject it and quickly concurred with the massive bill the Senate had passed. That sent it to the governor, who said he would sign it, and his administration used it as leverage to press lawmakers to approve an alternative.
The Senate voted 21-18 against debating an alternative plan, leaving Brownback, who made income tax cuts a cornerstone of his agenda, with only the one income tax-cutting option.