House and Senate Republicans still can’t find harmony on their dueling income tax reduction proposals, so attention Thursday shifted to their competing spending plans.
In a joint meeting of House and Senate Republicans, Senate leaders conceded that both chambers’ proposals to cut taxes while bringing in new revenue would push the state toward deficits within five years.
So Republican Senate leaders gave a strong sales pitch for their tax philosophy, saying bigger cuts to income taxes will spur economic growth and continuation of the recession-era temporary sales tax increase won’t cause the consumer calamities that many Republicans suggested just a few years ago.
“There are a lot of studies that show that when you lower the income tax, you grow jobs exponentially,” Senate President Susan Wagle, R-Wichita, said.
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That parallels the philosophy promoted by the conservative American Legislative Exchange Council. Wagle and House Speaker Ray Merrick are deeply involved in the organization, and Senate leaders distributed copies of ALEC’s “Rich States, Poor States” publication to buttress their arguments.
“We have found that states with low or no income taxes tend to do better on economic indicators such as growth in personal income and employment,” says the publication, co-authored by supply-side theorist Arthur Laffer. “There is, however, no similar link between the existence or level of a sales tax and a state’s economic performance.”
Gov. Sam Brownback hired Laffer as a consultant to help formulate tax-cutting proposals last year. The plan he presented was drastically altered by moderate Republicans who hoped to wound it so much that it couldn’t pass. But it passed and Brownback signed the bill, which has forced a follow-up proposal this year to stabilize the state’s budget.
The impact of income tax cuts on job growth has been widely debated. Other national organizations say elevated sales tax tends to burden the poor and middle class, who spend a higher percentage of their income on essentials, such as food and clothing.
The liberal-leaning Institution on Taxation and Economic Policy says proposals in Kansas to keep the elevated sales tax to help balance the budget while dealing with new income tax cuts could destabilize the state’s coffers.
“Wealthy Kansans would benefit the most from this tax change and poor families would likely see their taxes increased,” the group reported in April.
Sen. Ty Masterson, R-Andover, suggested lawmakers could continue the 6.3 percent sales tax on everything except for food to make things easier on consumers. The sales tax is scheduled to drop to 5.7 percent in July.
“The thing you have with sales is that it is a choice, after a certain point,” he said.
But some House Republicans say extending the sales tax would break a promise some made to let the tax expire on time or not raise any new taxes.
“You’ve got a lot of elections coming up in a year, and you’ve got a lot of people who signed a pledge,” said Rep. Marc Rhoades, R-Newton.
But more income tax cuts will make it easier to justify keeping some of the elevated sales tax rate, he said.
What that magic number is on sales and income taxes, however, remains elusive.
“It’s really about what do we have 63 votes on in the House to get something passed,” Rhoades said.
The wide-ranging talk on taxes was complicated Thursday by some disagreement over how much revenue growth the state should bank on. That, compounded by lower than expected oil and gas revenues, could force lawmakers to reformulate their tax and spending plans.
Senators handed out analysis of several tax plans based on various revenue growth assumptions. Many showed proposed tax cuts would erode the state’s savings account and then force deep cuts to state services to balance the budget a few years from now.
Sen. Laura Kelly, D-Topeka, who leads budget talks for Senate Democrats, said it feels like everyone is waiting for the governor’s office to rescue them. And she said the budget numbers and projections keep changing.
“Funny numbers are becoming a way of life around here,” she said.
Kelly said that the House and Senate GOP tax proposals all fail to meaningfully balance the budget while funding important government services.
“Everything is a patch for a few years, and then the Band-Aid falls off,” she said.