Gov. Sam Brownback on Thursday signed a tax bill into law that he says will make the state “the best place in America to raise a family and grow a business.”
Brownback says the new law, combined with the tax law passed last year, amounts to $4.1 billion in tax relief over six years. He said he expects the tax cuts to attract businesses, jobs and new Kansans.
“With this bill and the other strong reform steps we’ve taken, the days of outmigration and decline are over for the state of Kansas. They are over,” Brownback said.
Brownback made his remarks during a brief stop in Wichita for a ceremonial bill-signing at McGinty Machine Inc., a machine shop that makes parts for the aircraft industry.
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The company’s workforce was arrayed behind him as he signed several copies of the bill for legislators and others who had worked to pass it.
State Democrats complained that the bill weights tax relief to the wealthy and business owners, shifting the burden of paying for state operations to wage-earners and people in lower tax brackets.
Rep. Jim Ward, D-Wichita, said he thinks the tax bill will cause people to leave the state because future spending restrictions in it create an uncertain future for schools, universities, public safety and other services.
“There will be a budget crisis year after year,” he predicted.
According to an analysis requested by House Democrats and prepared by Brownback’s Department of Revenue, the amount of income tax relief accelerates with income. The average savings for different brackets, compared with the 2012 tax year:
• 0-$25,000 income: $50 savings
• $25,000-$50,000: $119
• $50,000-$75,000: $386
• $75,000-$100,000: $674
• $100,000-$250,000: $1,454
• $250,000 and over: $9,224.
Ward, however, said the savings projected in the Revenue Department estimate don’t tell the story because they don’t include sales tax, which falls more heavily on lower- and middle-income people who spend a higher percentage of their income on food, clothing and other taxed necessities.
Leaving sales tax out of the picture “is kind of like saying because you took it from a different pocket, it doesn’t hurt as much,” he said.
The new bill actually walks back some of the tax relief that would have been provided by last year’s tax bill and the bill that established a three-year, 1 percent sales tax to help the state through the recession in 2010.
The law is projected to increase state tax revenue by $777 million over the next five years, compared with if the Legislature had done nothing this session.
The new law sets the state sales tax at 6.15 percent as of July 1 – lower than the current 6.3 percent but higher than the 5.7 percent it would have dropped to under the provisions of the 2010 law.
The new law cuts income tax rates further but simultaneously phases down the value of most tax deductions, which nearly offsets the tax relief gained from the lower rates.
Additionally, the law limits the growth of government revenue to 2 percent a year starting in 2018. Any revenue in excess of that will be used to further buy down income tax rates until the tax is eliminated – the “glide path to zero” that Brownback has advocated as a way to spur business development in the state.
A projection by the Legislative Research Department shows that the state will spend $95.8 million to $182 million a year more than it takes in from 2014 to 2018, drawing down reserves until falling into the red in 2018.
Republicans, including Brownback, don’t think that prediction will actually come to pass.
They’re confident that increased business and commerce spurred by tax cuts will generate enough additional tax income to overcome projected deficits in a few years. It’s a state version of the so-called “Laffer Curve” theory postulated by Arthur Laffer, a former economic advisor to President Reagan whom Brownback brought to Kansas to consult on tax policy.
The new law leaves untouched the centerpiece of last year’s tax law, zero state income taxes for the owners of limited liability companies, sole proprietor businesses, farms and corporations organized under Subchapter S of the federal tax code.
Those are called pass-through companies because the federal government taxes the owners on their personal returns instead of taxing the business itself.
In Kansas, neither the business nor the owner pays any income tax to the state on the profit from the business.
Supporters of this year’s tax plan largely acknowledged they had gone too far with last year’s tax cuts, leaving the state unable to pay for vital services without revisions this year.
The final version of the tax law also contains a provision to allow county commissions to abate taxes on homes and mobile homes destroyed in natural disasters.
That was added to the bill in response to a situation that arose when tornado victims in south Wichita were charged a full year of property taxes for houses and mobile homes destroyed in April 2012.
The provision is retroactive to the beginning of 2012, so Sedgwick County commissioners can now abate the disaster victims’ taxes if they choose to do so.