Tax hikes, no business exemption under Kansas Senate GOP plan

Kansas lawmakers are working on plans to increase income tax rates and end a tax exemption for business owners, drawing criticism from Gov. Sam Brownback on Monday.

SB 147, backed by top Republicans in the Senate, would raise rates for all income taxpayers by about three-tenths of a percent and end a tax exemption for more than 330,000 farmers and business owners.

It is projected to raise $660 million in new revenue over two years. The state faces projected budget shortfalls totaling nearly $1.1 billion through June 2019.

Meanwhile, a majority of House tax committee members indicated Monday that they’re ready to propose raising taxes even more – between $900 million and $1.2 billion over two years.

Kansas has struggled to balance its budget since the Legislature enacted income tax cuts in 2012 and 2013 at Brownback’s urging. The state collapsed three income brackets into two, slashed income tax rates and exempted nonwage business income for owners of income limited-liability companies and other pass-through entities.

Brownback blasted the Senate proposal in a statement Monday, saying it would punish “job creators” and middle-class families. He touted his own plan.

The governor’s proposal would raise alcohol and tobacco taxes, take more money from the highway fund and use one-time fixes such as liquidating a long-term investment fund. It would not increase income taxes across the board and would preserve the business tax exemption.

“My budget and tax plan solve the challenges of today … while still trusting Kansans with the economic freedom to make their own decisions with their hard-earned money,” Brownback said.

‘Please, raise my taxes’

But lawmakers say they are being urged to reconsider the tax cuts.

“This morning, the first thing when I came in the office, I had a message from one of my constituents that said, ‘Please, raise my taxes,’ ” said Sen. Dan Goddard, R-Parsons. “That’s a story that I hear time and time again.”

The Senate bill is scheduled to be debated in the Senate tax committee on Tuesday.

At a hearing on the bill Monday, Bernie Koch of the Kansas Economic Progress Council called it a good start to address imbalances in the tax system.

“It’s evident that the 2012 and 2013 Kansas income tax changes went too far,” Koch said.

The Kansas Association of School Boards’ Mark Tallman said the bill would help raise more money for public schools.

“We do need more revenue to the state in order to support our public education system,” he said.

‘Incredibly destructive’

Opponents of the bill outnumbered supporters at the hearing. Some panned the bill because it alone wouldn’t solve the shortfall.

“We cannot be focused on a small element of the tax policy,” said Charlotte O’Hara, a former state lawmaker. “The leadership has to understand you cannot look at things in isolation.”

Drew Quinn, an Overland Park resident in commercial real estate, said the tax increase would cause businesses to leave the state.

“This is incredibly destructive and it would substantially damage the reputation of the state of Kansas,” Quinn said. “If you undo what you’ve just done, you look like a joke to the rest of the country.”

Barbara Paulus, a Bonner Springs resident, said the tax cuts have helped her since she lives on a fixed income.

“I would prefer that the Legislature reduce spending, including for education, rather than increase taxes on retirees,” she said.

Many of the opponents said the state had a spending problem, not a revenue one, and that money from tax increases shouldn’t go toward more spending.

“We don’t believe that the state should keep that money. It should be used to reduce other taxes,” said Kansas Policy Institute president Dave Trabert. “It simply comes down to how much a state chooses to spend.”

This story was originally published February 6, 2017 at 12:27 PM with the headline "Tax hikes, no business exemption under Kansas Senate GOP plan."