Lawmakers getting real about tax policy

If the Legislature’s tax policy in recent years has been wishful thinking, Senate President Susan Wagle, R-Wichita, and other top GOP lawmakers appear ready to get real – and to “fix the income tax bill that passed in 2012,” as she told The Eagle.

Acknowledging the true nature of Kansas’ budget crisis and the need to close loopholes or otherwise repair the 2012 tax bill is a dramatic new development at the Statehouse, where lawmakers will reconvene Wednesday for the wrap-up session.

Until now, few elected officials of influence have been willing to admit that the massive income-tax cuts went too far, especially in the exemption that zeroed out tax liability for more than 330,000 business owners instead of the anticipated 200,000.

But as Wagle said: “What’s evolved since we passed that plan is, you know, a CPA that works for a firm pays income tax, but a CPA who’s hung out a shingle and works independently pays no income tax. Or a painter. Or an engineer. Or a dentist. Or a lobbyist. It’s all professions and that’s just unfair. It’s unfair tax treatment.”

Some also now see that the tax exemption for pass-through business income is “not producing what it promised to do” in terms of economic growth and is “a structural problem,” as Rep. Mark Hutton, R-Wichita, told the Topeka Capital-Journal, adding that lawmakers should “take a hard look at it and tweak it for fairness and equity.”

House Taxation Committee Chairman Marvin Kleeb, R-Overland Park, told The Eagle: “We’re going to take a look at passive income. We’re going to take a look at royalties. I don’t think any of us ever intended for those to be escaped from taxation.”

Finding itself with $1 billion less revenue than it would have if the 2012 tax bill had never been passed, the state is on track to spend $800 million more in fiscal year 2016 than it will take in. Raids on highway funds, budget maneuvers and spending cuts are unlikely to suffice.

Even Senate Ways and Means Committee Vice Chairman Jim Denning, R-Overland Park, said: “I’ve cut about all I can cut.”

And so far the political support is weak for Gov. Sam Brownback’s proposed hikes on tobacco and liquor taxes.

Raising the 6.l5 percent statewide sales tax may be part of the solution, especially if the governor can sell it as some kind of high-minded taxation of consumption rather than “productivity” (and overcome the problem of how bad it looks to be raising the taxes that most directly affect the poor in order to offset tax cuts that most benefited wealthier Kansans).

But the shift in attitude and tone from key lawmakers indicates the 2012 reforms related to income tax may no longer be off-limits. If so, that’s progress – and a step toward a tax system that is fairer, and able to generate sufficient revenue to keep the state out of the red.

For the editorial board, Rhonda Holman

This story was originally published April 27, 2015 at 7:07 PM with the headline "Lawmakers getting real about tax policy."