One hurdle to passing a tax plan in the Kansas Senate is the fact that Republican leaders are divided over the issue.
Senate President Susan Wagle, R-Wichita, and Senate Vice President Jeff King, R-Independence, both support revisiting a tax exemption the Legislature passed in 2012, which took 330,000 business owners off the income tax rolls. Senate Majority Leader Terry Bruce, R-Hutchinson, is dead set against the idea.
The divide became clear during the Senate’s contentious tax debate Wednesday when Sen. Michael O’Donnell, R-Wichita, brought an amendment that would have inserted language from a House bill to tax business owners at a rate of 2.7 percent into the Senate bill. O’Donnell opposed the idea and wanted to show its lack of support by voting it down.
King pointed out that language in O’Donnell’s amendment failed to strike out contradictory language in the Senate bill, arguing that it therefore made little sense, and Wagle scolded him for wasting the chamber’s time with a symbolic vote. Bruce, however, praised O’Donnell for bringing the issue to the floor.
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Both the amendment and the underlying bill failed by huge margins.
“Did you hear what the Senate majority leader said on the floor and how he thanked me?” O’Donnell said after the debate when asked about the scolding from Wagle.
“What I know is Sen. Bruce is more in touch with the Republican caucus (on tax policy) – ask members if they feel Sen. Bruce or Sen. Wagle is more in touch with what the Senate wants right now.”
O’Donnell has previously hailed Wagle as his mentor in the Senate, but stands against her on this issue. He said he had conferred with Bruce about the amendment, but repeatedly emphasized that it was his own idea to bring it the floor.
“I don’t believe I’m out of touch with the state or my fellow senators,” Wagle said when asked about O’Donnell’s claim. She said she didn’t think it was productive to bring up legislation the House was working on “for theatrics and for a postcard vote … because I know what they’re going through to try and bring resolution.”
The state faces a $400 million shortfall for fiscal year 2016, which begins in July. Rolling back the exemption, which allows the owners of limited liability corporations and S corporations to not pay taxes, would fill more than half of the hole. Moving ahead with the House plan to tax business owners at the same rate as low-income Kansans would fill about a fourth of the hole.
Wagle signaled a willingness about a month ago to revisit the exemption as part of a larger budget fix. Bruce disagrees.
“I’m typically against the income tax on small businesses,” Bruce said.
“You look at it, it’s pretty bad policy,” he said. “Especially when you look at it politically, you’re still going to have to come up with consumption taxes in order to go the other three-fourths of the way, so why not just look solely at consumption taxes?”
Bruce said that as majority leader it’s important to see where the majority of the Senate is on an issue and “work off that principle.”
Wagle said this isn’t the first time they’ve disagreed on an issue.
“That’s the beauty of the Legislature that we’re not all like-minded … we have many differences of opinion that need to be worked out behind closed doors and on votes and on the floor and in committees,” she said.
“Most big issues like this, the final package that evolves, that receives the majority of the votes, is a package that everyone hates. Everyone hates,” Wagle said.
“And it’s also a package where everyone compromises. That’s just the nature of the system.”
King said that when lawmakers passed the exemption in 2012 their understanding was that it would only exempt nonwage income from taxation.
“Susan and I both still want to exempt nonwage income from taxation,” King said. “The problem was the actual language exempted both wage and nonwage income, so all we want to do is go back and make sure the law does what we said it was going to do in 2012.”
He noted that the website for the state’s Department of Commerce erroneously says that the state only exempts nonwage income, which King defined as income derived from capital investment versus income derived from labor. Both are exempt for business owners under the current law, he said.
“The caucus is divided on tax policy,” King said when asked whether Republican leaders’ disagreement was holding up progress on a budget fix. “I think anyone that tells you that this is a zero sum game, that either Terry has to win or Susan has to win, is wrong.
“We’re going to come out with something in between both of those approaches.”