Kansas Senate to consider tax increases to close budget gap
Topeka The Republican-dominated Kansas Senate is considering a plan to raise taxes to close a projected budget shortfall, with GOP Gov. Sam Brownback saying he isn't drawing "very clear lines" for lawmakers who are split over reversing one of his major economic initiatives.
The bill up for debate Thursday in the Senate would repeal an income tax exemption for more than 330,000 business owners and farmers enacted in 2012 and replace it with a less lucrative tax credit against their payrolls. It also would increase the state's sales, cigarette and motor fuels taxes.
Brownback and legislators must close a projected $406 million budget deficit for the fiscal year beginning in July. The gap arose after legislators cut personal income taxes in 2012 and 2013 at Brownback's urging in an effort to stimulate the economy.
If legislators don't backtrack on the tax exemption for business owners and farmers that Brownback championed, they'll have to rely more heavily on increasing other taxes to raise new revenues. The Senate plan would increase the sales tax to 6.5 percent from 6.15 percent, while dropping the rate on food to 6 percent.
The Kansas Chamber of Commerce and National Federation of Independent Business are lobbying to preserve the tax break, and their representatives said Wednesday that they believe the governor has been clear in public statements about wanting to keep the policy.
But during a brief interview Wednesday, Brownback said, "I've purposely not drawn a lot of very clear lines and have been purposely saying I want to move off of income tax onto consumption tax, and let's see what we can do."
Brownback said his approach is "much more useful" for resolving tax issues. Legislators convened Thursday for the 95th day of their annual session, five more than their leaders traditionally schedule, at a total cost of $43,000 per day.
"It is complicated, but I think the process is moving in the right direction," Brownback said. "It can get frustrating because you just want to get it done NOW, but you've got to work with people."
The 2012 policy exempted the profits of 281,000 business owners and 53,000 farmers from income taxes. Brownback touted it as a first-in-the-nation attempt to create jobs.
The state Department of Revenue estimates that the exemption is worth about $220 million a year, or about 22 percent of the total income tax cuts for the next fiscal year. Lawmakers also have cut personal income tax rates, reducing the top one 29 percent.
The Senate plan would raise $82 million during the next fiscal year by replacing the business profits exemption with a tax credit equal to 1 percent of a business' total payroll.
But Senate Majority Leader Terry Bruce said ahead of Thursday's debate that he opposes tinkering with the existing exemption.
"The Senate, I don't think, will get behind a business income tax increase," the Nickerson Republican said.
The House Taxation Committee is reviewing a proposal to raise $23 million during the next fiscal year by imposing a personal income tax on some profits.
House committee Chairman Marvin Kleeb, an Overland Park Republican, said he "wouldn't be surprised" to see a proposal on taxes for business owners included in the final version of a tax plan.
And Rep. Tom Sawyer of Wichita, the House committee's top Democrat, said Brownback's tactic of not making definitive statements about what he'll accept makes it easier to repeal or modify the business profits exemption.
"I think the governor's going to sign whatever we pass," Sawyer said.