The Kansas Senate will debate a bill next week that may change how much some taxpayers will owe this year. But lawmakers don’t have a firm grasp on how much it will cost.
The uncertainty comes as Gov. Laura Kelly wants additional funding for schools and other spending. Tax legislation backed by Senate President Susan Wagle coupled with Kelly’s spending priorities could shrink the state’s reserves, which have grown since lawmakers raised income tax rates in 2017.
A committee created and chaired by Wagle, R-Wichita, advanced legislation Thursday that would return what Republicans view as a tax windfall. Republicans passed it over the objections of Democrats, who warned the plan may return Kansas to an era of missed revenue projections and budget cuts.
By all accounts, some Kansans and businesses will owe additional state taxes this year because of differences between the state tax code and the federal tax code caused by 2017 federal tax changes. In some cases, people will no longer be able to itemize state taxes.
That’s expected to mean more revenue for state government. One early estimate from the Department of Revenue in December 2017 pegged the amount at roughly $140 million a year.
Lawmakers are now debating whether to pass a bill addressing some of the changes caused by the 2017 federal law.
Republicans voiced fears that large companies would move their operations out of Kansas if lawmakers fail to pass the tax legislation. They raised the prospect that not passing the bill would ultimately cost the state jobs.
Lawmakers heard from a parade of businesses this week that urged them to approve the legislation.
“Kansas needs to take definitive actions to clearly define how its tax policy will account for changes to the federal tax code,” Damon Ward, the director of global tax for Spirit AeroSystems, told lawmakers on Thursday.
Kansas would lose $191 million in revenue next fiscal year, which begins in July, under the legislation, Senate Bill 22. That’s according to estimates from the Kansas Department of Revenue
But both Republicans and Democrats cast doubt on the figure.
Republicans contend that Kansas would not have gained much of the revenue to begin with without the 2017 federal law. In effect, the bill’s cost comes from tax revenue that the state never expected to have in the first place.
“The fiscal note that we’ve heard about, they have said clearly it’s a shot in the dark,” Wagle said.
Wagle and other Republicans have dismissed concerns about the possible costs of the bill. Instead, they warn of the cost to businesses if they don’t act.
“We have a workforce problem and we’ll have another workforce problem if these companies move because then we’ll lose a bunch of jobs,” Sen. Julia Lynn, R-Olathe, said.
Sen. Tom Holland, D-Baldwin City, said too much attention had been paid to the bill’s effect on corporations and not enough to how it would affect individual taxpayers. He said the legislation should be split into two measures — one for corporations and another for individuals.
Holland also distributed a state financial profile that shows Kansas $99 million in the red by 2022 under Senate Bill 22, using the estimates provided by the Kansas Department of Revenue. The bill includes the approximately $90 million more a year in funding for schools that many believe is needed to satisfy the Kansas Supreme Court, which has said schools are inadequately funded.
“This means going back to the (former Gov. Sam) Brownback years, if we go down this path” and advance the bill in its current form, Holland said.
Democrats say it’s possible that estimates of the bill’s cost may be too low. Holland said he “might as well shake my magic eight ball” to ask about costs.
Kelly has warned lawmakers that Kansas doesn’t yet know the full impact of federal tax changes on Kansas and has urged them to hold off on changes to the tax code this year. Kelly spokeswoman Ashley All said Thursday that Kelly “presented a balanced budget that puts our state back on sound fiscal footing. Senate Bill 22 would undo all our progress.”
Kelly’s position is echoed by other Democrats.
“I think there’s the possibility the fiscal note we get from our own people in grossly underestimated and the financial impact this legislation may have will be much more severe than what we’re looking at,” Sen. Vic Miller, D-Topeka, said.
The legislation has been on a fast track. Wagle took the extraordinary step of creating a separate tax committee to work on Senate Bill 22 and appointing herself the chairwoman — effectively sidelining the chairwoman of the existing tax committee, Sen. Caryn Tyson, R-Parker.
Wagle said she plans to have the Senate debate the bill next week. Wagle has said it’s important to pass the bill quickly because taxpayers will soon start filing their 2018 returns. The bill also comes as Wagle explores a run for U.S. Senate to replace Sen. Pat Roberts, who doesn’t plan to seek reelection in 2020.