TOPEKA — Gov. Sam Brownback says a plan increasing sales and other taxes does not count as a tax increase because it comes on the heels of income tax cuts passed three years ago.
He signed the state’s $15 billion budget and two tax increase bills, HB 2109 and SB 270, needed to fund it Tuesday.
The governor championed massive tax cuts in 2012, which many economists have blamed for the state’s budget problems this year. On its 113th day last week, the Legislature passed a plan to raise the sales tax from 6.15 percent to 6.5 percent starting in July.
National experts have panned the plan and say Kansas could face more budget problems in the future.
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Democrats have called the $384 million tax plan the largest tax increase in state history.
Brownback pushed back against that, saying it was not a tax increase because it comes after tax cuts.
“Look at the totality of the picture. When you look at that, it is a tax cut,” he said.
Brownback noted that the final result is similar to his initial tax proposal in 2012.
His staff distributed data showing that the overall value of the taxes cut during his first term outweighs the overall increase this year. The data was not broken out by income group or individual person.
The Institute on Taxation and Economic Policy, a liberal-leaning think tank that has criticized Brownback’s policies, released an analysis hours later showing that the bottom 40 percent of Kansans will on average end up paying more in taxes.
People making less than $23,000 a year will end up paying an average of $197 more a year in overall taxes when this year’s changes are weighed against the previous tax cuts, according to the institute’s analysis. People making between $23,000 and $42,000 will see an average overall increase of $66.
On the other end of the spectrum, people making more than $493,000, who represent the top 1 percent of Kansans, will pay $24,632 less in taxes even when this year’s tax increase is included, according to the institute.
‘They got it done’
Republicans struggled to reach consensus on tax policy this session and only found the bare minimum of votes needed to pass a bill Friday after the governor warned that massive budget cuts would take place this week if lawmakers did not act.
“They got their work done. The furloughs didn’t happen. They got it finished. I applaud that,” Brownback said. “They got it done. And I don’t know that anybody’s happy about it. But they got their work done and Kansans should applaud them. It took a long time. But they got it done.”
Brownback blamed dysfunction in Topeka in recent weeks on Democrats, who hold less than one-fourth of the seats in the Legislature.
“The minority party put forward no proposals to solve this issue. None. They just wanted to see it fail,” Brownback said.
Democrats fired back.
“Governor Brownback is incapable of telling the truth,” said Senate Minority Leader Anthony Hensley, D-Topeka, in a news release. “Not only is this a tax increase, it is the largest tax increase in state history. His ‘glide path to zero’ is a complete failure and will further result in a self-inflicted budget crisis for years to come.”
More cuts coming
The tax plan fixes the shortfall in the state’s $6.4 billion general fund budget but is projected to leave a razor-thin balance at the end of the 2016 fiscal year, which starts next month. Lawmakers are counting on the governor to make an additional $50 million in cuts to help shore up the state’s cash reserves.
Brownback repeatedly touted K-12 education during the news conference, but would not definitively say that cuts to K-12 education would be off the table.
“I didn’t hear a specific answer,” said Scott Rothschild, spokesman for the Kansas Association of School Boards. “Our position is we need a sustainable, reliable source of tax revenue, and we’ll see if this does it or not.”
“Schools have been on high alert for years. There’s all this talk about was our funding increased or was it decreased. Schools are dealing with severe funding challenges,” Rothschild said. “Our funding is not keeping up with inflation.”
The governor said he had not decided what to cut, with one exception. When he signed the budget, he made a line-item veto based on a recommendation from the Kansas Board of Regents, cutting $1.9 million both this coming year and the next for a program that grants funds to post-secondary institutions that provide GED accelerators for students.
Budget director Shawn Sullivan said the Board of Regents indicated the program had sufficient funds to operate through 2018 without the additional money.
With the cut, the state is projected to have an ending balance of less than $40 million – without additional cuts from the governor — and only if everything goes exactly as planned, which is unlikely, said Joseph Henchman, a policy analyst with the conservative-leaning Tax Foundation in Washington, D.C.
“Everything’s got to work perfectly,” Henchman said, predicting that additional budget cuts or tax increases would be on the horizon. “Their projections have to be perfect for the next three years.”
Henchman said Kansas has become a cautionary tale for other states’ policymakers when they approach his organization for advice on tax policy.
“A lot of people are asking when they confront proposals, ‘Well, what does this compare to Kansas? Because we don’t want to be like Kansas,’” Henchman said. “‘What did Kansas do, so we know not to do that?’”
Henchman said Kansas made two key mistakes when crafting its tax policies in 2012: It failed to reduce spending proportionally and it excluded limited liability companies from income tax.
This policy gave independent contractors incentive to make LLCs to avoid paying income tax, he said. “That’s creating, I think, a lot of the instability in the tax code. Because you don’t know how many people are going to take advantage of this each year – and that’s a big hole in the budget and a big hole in the projections,” he said.
The state had projected that about 191,000 business owners would use the business tax break. The Eagle reported in February that the number turned out to be more than 333,000.
Brownback had threatened to veto any tax plan that rolled back the business income exemption. Sen. Jeff Longbine, R-Emporia, accused Brownback of perpetrating “political blackmail” by warning of massive budget cuts while refusing to budge on the business income issue.
Brownback acknowledged the veto threat, but contended that he had been open to hundreds of proposals from lawmakers and that time simply ran out. He also said time would serve as a healer for lawmakers who grew frustrated during the long session.