Support for Gov. Sam Brownback’s plan to raise taxes on alcohol and cigarettes is quickly slipping away, forcing lawmakers to scramble for other ways to patch a nearly $600 million budget hole.
“The ‘sin taxes’ – liquor and cigarettes – are really a nonstarter,” said Sen. Jim Denning, R-Overland Park. “I don’t think it’s going to get any legs.”
At the start of this year’s legislative session, Brownback proposed nearly tripling the tax on cigarettes to $2.29 a pack from 79 cents.
He also proposed increasing taxes paid by consumers on beer, wine and liquor to 12 percent from 8 percent. The tax increases on cigarettes and alcohol would bring in an estimated $212 million over two years, starting in July.
On Wednesday, House Speaker Ray Merrick came out against raising the so-called sin taxes. The Johnson County lawmaker said he fears new taxes on alcohol and cigarettes will send Kansas taxpayers across the border into Missouri to buy those products.
“I don’t want to chase the revenue we already do collect on alcohol and tobacco across the state line, which will defeat the purpose of raising taxes on those products in the first place,” Merrick said in a statement.
Lawmakers face a nearly $600 million deficit for the fiscal year starting July 1. The deficit has widely been blamed on deep income tax cuts that Brownback pushed through the Legislature in 2012 and 2013.
The first indication that support for the governor’s tax plan was cracking came last week when a key House committee unveiled several tax alternatives, including measures for raising the sales and gasoline taxes.
Lawmakers also have proposed looking at a tax on so-called “passive income,” such as rent or royalties, as well as a tax on wind and solar energy production.
Since then, Sen. Jeff Melcher, R-Leawood, has created a buzz at the Capitol with a bill that would recalculate taxes on agriculture property in a way that would bring in more state tax revenue.
Melcher, whose bill has been labeled a “war on agriculture” by critics in western Kansas, said farmland and ranch property has been artificially undervalued by the tax formula.
Lawmakers also have considered trimming some tax exemptions as a way of bringing more money into state government.
Keep revenue in Kansas
A House committee on Wednesday heard testimony on Brownback’s proposal to raise the sales tax rate on liquor. The panel will meet again Thursday to hear testimony on cigarette taxes.
Lobbyists for the liquor industry turned out in force to oppose the tax proposal, arguing that it works against Brownback’s philosophy of trying to cut taxes in an effort to create jobs and promote growth.
“This is the first time I’ve seen a proposal like this, especially out of this administration, (which) has talked about being pro-jobs, trying to be low-tax,” said Jason Watkins, lobbyist for the Kansas Beer Wholesalers Association. “This is a tax increase that will cost jobs.”
The alcohol tax increase even drew opposition from Brownback’s former budget director, who now works for the conservative-leaning Kansas Policy Institute.
“First, we should look at cutting spending. I don’t think we have done enough on that,” Steve Anderson told the committee. “Certainly, there are savings to be had out there.”
Rep. Marvin Kleeb, R-Overland Park, said any new tax won’t be considered until lawmakers have looked at reducing spending as much as possible. Even then, he suggested the governor’s proposed tax increase probably wouldn’t pass.
The tax increases proposed on alcohol and cigarettes are particularly bothersome for Johnson County lawmakers. About half of Kansas alcohol sales occur within 50 miles of the Missouri state line.
They don’t want to see local businesses put at a disadvantage against Missouri retailers, which tax cigarettes at 17 cents a pack compared to the $2.29 proposed by Brownback.
“I don’t think (the tax hikes have) much of a prayer,” said Rep. Jerry Lunn, R-Overland Park. “It’s going to potentially drive revenues into surrounding states, and we can’t really afford to lose that.”
Other lawmakers are skeptical that Brownback’s plan will produce the revenue needed to solve the state’s budget crisis.
“It just feels like a Band-Aid on a broken leg,” said Rep. Mark Hutton, R-Wichita and a member of the House tax committee.
Senate President Susan Wagle said it was too early to know how much life was left in the governor’s proposal to raise taxes on alcohol and cigarettes, but she said that can be a “pretty big lift.”
“There’s clearly a resistance to the governor’s package that he proposed to make up the deficit,” the Wichita Republican said.
Senators, she said, want to look at who benefits from what tax exemptions and credits and who doesn’t. She said lawmakers don’t want to single out any specific sector to bear the brunt of balancing the state budget.
“We want to level the playing field and treat all taxpayers equally,” Wagle said.
Rep. Scott Schwab, R-Olathe, saw little support for raising taxes on alcohol and cigarettes. But as the session evolves, he said, that could change as lawmakers run out of ideas for cutting the budget or raising other taxes.
“If the vote were today, the votes aren’t there,” Schwab said. “Just going after one product right now, whether it’s cigarettes or alcohol, there’s just not much support for that right now.”
Contributing: Bryan Lowry of The Eagle