TOPEKA – A preview of a potentially bruising fight involving the state’s mortgage interest and property tax deductions played out Wednesday over plates of chicken and rice that builders and real estate agents bought for south-central Kansas lawmakers.
Although Gov. Sam Brownback’s plan to drive down income taxes could bolster economic growth, it would equate to a big tax increase for middle-class Kansans who cash in on those deductions, the Wichita Builders Association, Kansas Realtors Association and Kansas Building Industry Association said. Those groups will testify against the proposal Thursday before the Senate Tax Committee.
“We do truly believe it’s a tax increase,” said Luke Bell, a lobbyist with the Realtors.
Brownback’s proposal eliminates the deductions in order to afford more reductions in income tax rates. He aims to eventually phase out individual income taxes altogether.
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“We’re going to balance the budget solely on the backs of homeowners,” Bell said.
Senate President Susan Wagle and Senate Tax Committee Chairman Les Donovan, both conservative Republicans, fired back.
The income tax cuts Brownback approved last year saved many Kansans thousands of dollars, and too many lobbyists and lawmakers are focusing on losing the deductions rather than on the overall picture, which equates to tax breaks for all Kansans, they said.
“We need the whole story, folks,” Donovan said.
“We’re going in the right direction in Kansas,” Wagle told the lobbyists. “You’re not telling the full story.”
The “full story” is at the heart of a dramatic debate over tax code that’s unfolding in Topeka. But since only select data has been released, and lawmakers are still learning about the details of the plans, no one seems to have won the information war yet.
Brownback’s administration has pulled out statistics showing that the benefits of income tax cuts outweigh the value of the mortgage interest and property tax deductions.
One of their snapshots projects that the average worker in Sedgwick County would see a net tax cut of $341.91 if Kansas drops its top income tax rate from 4.9 percent to 3.5 percent.
That doesn’t figure in extra taxes paid if the state extends a temporary six-tenths of a cent sales tax, as Brownback has proposed. It also doesn’t consider that Brownback’s plan would channel state revenue growth over 4 percent toward even more income tax cuts.
Realtors discount what Brownback’s administration has shown so far. They produced their own analysis that shows the average Kansas taxpayer gets $390 a year from the mortgage deduction and that 65 percent of those claiming the deduction make less than $100,000 a year. And they said the property tax deduction is worth nearly as much to many homeowners.
But Wagle, Donovan and others contend the real estate agents aren’t taking into account how income tax cuts could drive growth, attract new residents to the state, create new jobs and lead to more people buying more houses because they’re more prosperous.
“We are attracting businesses, we’re building hospitals,” Wagle said. “It’s just absolutely unbelievable what we’ve done in just a few months by lowering that income tax. To block further lowering of that income tax is going to hurt our growth. There’s just no question.”
But even the record number of newly organized businesses – or at least how meaningful those figures are – is a matter of debate.
Wagle said they’re a sign last year’s tax cuts are working.
Rep. Carolyn Bridges, D-Wichita, said the figures could be inflated by companies that reorganized as limited liability companies to take advantage of last year’s tax-cut law, which eliminated taxes for that type of business.
Donovan said he just wants to know the whole story.
“I really would like somebody to present me the proof that the Department of Revenue’s numbers are a falsehood, which we have other words for that,” he said. “If that’s true, we need to call them to task. They shouldn’t be able to get away with the same thing you all are telling here. This is only a one-sided deal.”