TOPEKA — Lawmakers left Topeka with no clear end in sight for the state’s budget problems Thursday after the Senate canceled a debate on a plan to increase taxes.
The GOP senators sparred over the plan, which would temporarily suspend an income tax exemption for business owners and raise sales taxes, during a caucus meeting Thursday morning.
After about a half hour of discussion, Senate Majority Leader Terry Bruce, R-Hutchinson, said he wasn’t expecting a healthy debate.
A few hours later, the debate was canceled.
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The Office of the Revisor of Statutes, the state attorneys who draft legislation for lawmakers, was flooded with requests from lawmakers for amendments and unable to keep up with the workload, Bruce said.
“The revisors assigned to tax have been working overtime for the last couple weeks,” Bruce said. “And plus we’re trying to get folks on the road at a decent hour because we’re not coming in tomorrow … so we’re kind of caught. So it looks like we’re going to have to back off a little bit and do it Wednesday morning.”
The Legislature will take off Friday and Monday for Memorial Day weekend. Bruce said the Senate would debate its tax bill Wednesday. He expects a plethora of amendments.
The House Taxation Committee did not meet Thursday and won’t meet again until Tuesday or Wednesday. That means the earliest both chambers could pass a comprehensive plan would be late next week.
Lawmakers passed the 90-day threshold for the session last weekend. Every extra day the Legislature remains open costs between $43,000 and $45,000.
Senate Minority Leader Anthony Hensley, D-Topeka, released a photo of a dark tunnel Wednesday with one sentence commenting on the progress of Republican-led efforts to craft a tax plan: “There is no light at the end of the tunnel because they can’t even find the entrance to the tunnel.”
Asked about the slow pace, House Taxation Chair Marvin Kleeb, R-Overland Park, said it’s “very difficult for the majority party to raise taxes. So that’s No. 1.”
“Secondly, there’s an ideological divide of how to do the tax increases. … Do we just try to do all consumption taxes or is it a combination of both (consumption and income)?” Kleeb said.
The House rejected a bill last week that relied almost entirely on sales, or consumption, taxes. The Senate plan that was scheduled for debate Thursday relies on a combination of taxes.
The Senate plan, offered by Sen. Les Donovan, R-Wichita, chair of the Senate Taxation Committee, would fill in the state’s $406 million shortfall and leave about $90 million in state coffers at the end of the 2016 fiscal year.
Response to the plan during a Republican caucus meeting Thursday morning wasn’t enthusiastic.
HB 2109 would temporarily replace a tax exemption for business owners with a 1 percent tax credit based on a company’s payroll. Donovan, who owns a car dealership, used his own business as an example.
Donovan said his business is a Subchapter S corporation and he pays no taxes on his income. He said he has saved $50,000 to $60,000 annually since the exemption went into effect in 2013. Donovan, who has 65 employees, said he would save $32,000 under the tax credit based on his employees’ combined salaries of around $3.2 million.
Criticism from Republicans
Several GOP lawmakers expressed frustration with the plan.
Sen. Steve Fitzgerald, R-Leavenworth, said it should include a reduction of the earned income tax credit, a tax break that benefits low income people. Some Republicans say reduction or elimination of the EITC should be part of a final tax package.
Bruce said reducing the EITC would affect how much federal aid the state receives for welfare.
Sister Therese Bangert, a Catholic nun who advocates for policies to help the poor, said she was very concerned that the push to eliminate the EITC would gain momentum. She added that the state has eliminated many of the other credits meant to help low-income Kansans.
“This is income tax policy for low-income, working families. And we no longer have the childcare tax credit. The food sales tax credit. The renters’ tax credit,” said Bangert, a member of the Sisters of Charity of Leavenworth. “This is the one credit that’s held on to help low-income, working parents take care of their families.”
Sen. Jeff Melcher, R-Leawood, said he would introduce two amendments on the floor: a $3-an-acre excise tax on agricultural land and closure of a sales tax exemption for farm machinery. He contends that the state’s tax structure unfairly favors rural counties over more populous ones such as Sedgwick and Johnson.
Melcher, a member of the tax committee, had pushed unsuccessfully for his provisions to be added to the bill during committee hearings.
“There’s a lot of ideas,” Bruce said. “We have 32 independent-minded Republican senators that may have their own preference as to what a plan looks like and at the end of the day there’s probably going to be one compromise bill that isn’t perfect by any of their standards. So we’re at a situation where we just need to start closing doors.”
Donovan’s plan also includes a provision that would lower property taxes on newer vehicles but make them subject to a statewide mill levy on cars. This would cost local governments, which now receive property taxes on cars.
Donovan said local governments would make up the lost revenue because more people would want to buy new cars, resulting in higher sales tax revenue. He talked at length about the societal benefits that result from new car sales.
The bill would increase the sales tax to 6.5 percent on all items except food. Food would be taxed at 6 percent, lower than the current rate of 6.15 percent for all products.
“This is food you buy in the grocery store, not that you buy at Celtic Fox,” Donovan said to the caucus, referencing a bar and grill across the street from the Capitol.
The bill also would include a 50-cent tax increase on cigarettes. That is lower than the $1.50 increase the governor proposed, which Donovan said “brought down the wrath of God.”
He said his proposal would raise the total state tax on cigarettes to $1.29 a pack, below the national average of $1.36. He added that New York State and New York City both impose taxes on cigarettes for a combined rate of $5.85.
“No wonder that 350-pound guy got choked to death for selling loosies (slang for individual cigarettes) on the street,” he said, referencing the death of Eric Garner, who died after being put in a chokehold by an NYPD officer in July.