A bill designed to prevent Kansas residents and businesses from paying higher state income taxes because of 2017 changes in federal tax laws cleared the state Senate on Thursday.
Democrats attacked the Republican tax relief bill as a give-away to large corporations, and they managed to peel away a couple of GOP votes.
The Senate vote was 26-14, leaving GOP leaders one vote short of the two-thirds majority necessary to override a veto by new Democratic Gov. Laura Kelly, who has opposed the bill.
A key part of the bill would prevent thousands of people from losing itemized deductions on their state forms. But nearly three-quarters of the relief in the first year of the changes would go to businesses — and much of that to corporations with international operations.
“They’ve had tax breaks for years, and it’s time for them to start paying their fair share,” said Sen. John Skubal, a moderate Kansas City-area Republican who was one of two GOP senators to vote no.
Kelly and other Democrats want to boosting spending on public schools and expand state Medicaid health coverage for needy families. But Republicans — who have supermajorities in both chambers — are making tax relief a top priority, which would make Kelly’s spending goals more difficult.
Many Republicans say that the state’s business climate and economy will suffer if it doesn’t provide corporate tax relief quickly.
“Our young people are going to have fewer job opportunities and have fewer companies looking at Kansas,” said Senate President Susan Wagle, a Wichita Republican and the bill’s architect. “We need to have an economic environment that encourages growth, encourages new jobs, encourages creativity.”
The Kansas Department of Revenue estimates that the bill would save taxpayers $187 million during the next budget year, which begins in July.
Corporations would save $137 million of that, or 73 percent of the total tax relief. And $81 million — or 43 percent of the total — comes from provisions designed to prevent the state from taxing foreign income that it hasn’t previously taxed.
“How many multi-national corporations are small?” House Minority Leader Tom Sawyer, a Wichita Democrat, said Thursday. “You’re not talking mom-and-pops.”
The federal tax changes included provisions preventing corporations from sheltering income and assets outside the U.S. that could lead to Kansas and other states taxing foreign income.
The Kansas Department of Revenue said the state is among only a dozen taxing one part of companies’ foreign income. Other parts could be taxed by more than half with the federal changes, according to a report last month from the conservative Tax Foundation.
In Kansas, Kelly has called on legislators to wait at least another year to consider tax changes. Her staff has called the tax bill irresponsible, and a conservative GOP senator predicted Wednesday that the bill is headed for “a big, fat veto.”
Republicans have the two-thirds majorities needed in both chambers to override a veto, but the Senate vote Thursday showed how Kelly could prevail if just a few GOP moderates bolt.
All 11 Democrats and the Senate’s one independent member voted against the bill. Republicans hold 28 seats, but Skubal and Sen. Mary Jo Taylor, a moderate western Kansas Republican, voted no.
Taylor said lawmakers ought to settle budget issues, including school funding, before tackling tax relief. Skubal raised the same issue but said he might have been able to vote for the bill had its relief gone only to individuals.
GOP leaders contend Kansas is receiving an unanticipated “windfall” from the federal tax overhaul championed by President Donald Trump and Republicans in Congress. The state’s tax laws are tied to the federal tax code.
Federal individual and corporate income taxes were cut but the overhaul included provisions that are expected to raise revenues in some states while lowering it in others.
The federal tax changes limit itemized deductions, and Kansas estimates that 200,000 individual filers will stop itemizing on their federal returns this year. But only 26 percent of Kansas filers itemized on their 2017 federal returns, and a smaller group, 14 percent, itemized on their 2017 state returns.
A Senate committee’s hearings last week on the tax bill were dominated by the concerns of business groups and big corporations with a sizable Kansas presence, such as aviation’s Spirit AeroSystems and agribusiness’ Seaboard Corp.
A trade association for multistate corporations told lawmakers their state taxes could rise 11 percent.
“We operate in competitive markets with small margins,” David Rankin, a senior Seaboard vice president, told senators in committee testimony. “It seems counter-productive to penalize U.S.-based companies for growing their international operations.”
But Democrats have not been moved by such arguments. Kelly, a former state senator, has said her top tax relief priority would be reducing the state’s 6.5 percent sales tax on groceries — a goal Democrats and many Republicans share.
“If we were to make changes to tax policies, those changes should benefit every Kansan, or at the very least those who need it the most,” said Senate Minority Leader Anthony Hensley, a Topeka Democrat. “Giant multi-national corporations with record profits don’t fit in either category.”