A new wrinkle in Gov. Sam Brownback’s tax plan emerged Wednesday – a proposal to eliminate another deduction for Kansas homeowners.
The governor wants to wipe away the income tax deduction for real estate taxes to pay for reducing state income taxes even further than what he signed into law last year. It’s one of several components that Brownback’s plan depends on to reduce incomes taxes while balancing a $14 billion budget without making severe cuts in state services.
The governor also wants to keep the six-tenths of a cent sales tax increase that is scheduled to expire this summer and eliminate the deduction for home mortgage interest.
The latest twist caught lawmakers flatfooted, although the Brownback administration said it publicly announced plans to eliminate the real estate tax deduction after the governor’s state of the state speech last week.
“Nobody saw that one,” said Rep. Nile Dillmore, D-Wichita. “Even though your property tax itself didn’t go up, you lose the deduction for that property tax, which means that’s money out of your pocket as a result of a de facto increase in your property taxes.”
Other lawmakers and lobbyists said they were just learning about the plan, which would affect roughly 372,000 Kansans who deduct their real estate taxes on their income taxes. The tax deduction is worth about $125 on average, compared to the home mortgage deduction, which is worth about $300 on average.
The state would reap an added $68 million by dumping the real estate tax deduction. Eliminating the mortgage deduction could add $162 million to state coffers.
Sen. Les Donovan, R-Wichita, who is chairman of the Senate Tax Committee, said lowering income taxes could result in a net benefit for Kansans.
“When you lower people’s tax rates, that offsets a lot of other areas where they might have to give up an exemption or pay a little more somewhere else,” he said. “By lowering dramatically, like we did, we’ll have a very positive impact on many, many people — probably the majority of people in the state.”
But he and others expect elimination of the real estate tax deduction — in addition to elimination of the mortgage interest deduction, which drew criticism from the Kansas Association of Realtors — to generate more opposition.
“I think it will create more debate,” Donovan said. “It sure will.”
The latest news about Brownback’s tax plan could complicate a delicate dance for the governor, who is trying to balance a budget without severely cutting services while still slashing income taxes.
Sen. Ty Masterson, R-Andover, said the plan to eliminate the real estate tax deduction caught him off guard and that it may create in some people a perception of increasing the tax burden.
“There are several items that are potentially problematic,” he said. “If it’s not all part of an overall tax decrease, it’s going to be unpalatable to this Senate and this House.”
Sen. Jim Denning, R-Overland Park, said he wasn’t under the impression that the governor wanted to eliminate deduction for real estate taxes. He called it a “conversation piece” that the revenue secretary put out as another piece of tax policy.
Denning, who sits on the Senate Ways and Means Committee, cautioned that going after the home mortgage deduction and the real estate tax deduction could be politically dangerous.
“I think it’s all going to be an uphill battle,” Denning said. “It’s kind of a third-rail item.”
Flatter tax policy
The governor’s office announced its intention to eliminate the real estate tax deduction in the next to last paragraph of a Jan. 16 news release.
The issue bubbled up Wednesday morning when Budget Director Steve Anderson outlined the governor’s income-tax-cutting plan to the Ways and Means Committee.
Brownback wants to cut the upper tax bracket to 3.5 percent from 4.9 percent in 2017. He wants to reduce the lower tax bracket to 1.9 percent from 3 percent from 2014 to 2016.
He also wants to buy down income taxes further with revenue growth exceeding 4 percent. The governor ultimately wants to zero out the income tax for Kansans.
The governor “believes the state would benefit from a fair, flatter tax policy,” said his spokeswoman, Sherriene Jones-Sontag.
“The bottom line to our approach to taxes is to grow the state’s economy and create more jobs to Kansans.”
She said the goal is to put more into the hands of Kansas taxpayers to let them decide how to spend their money.
State Rep. Richard Carlson, R-St. Marys, chairman of the House tax committee, said he learned about the governor’s plan Wednesday morning, although Revenue Secretary Nick Jordan had been scheduled to brief him over the weekend. The meeting was canceled after Jordan became ill.
Carlson set aside any concerns about not learning about real estate tax deduction until Wednesday. He said he was more concerned about getting a bill early enough in the session to give the Legislature time for refinements.
“I haven’t formed an opinion yet,” he said of the proposal to eliminate the real estate tax deduction. “I want to look at the bill in its totality.”
Carlson added there are many different ways to arrive at the governor’s goal of ultimately reducing Kansas taxes.
“There are different options to obtain the same goal,” he said. “We will explore all of those options.”