Topeka As the budget crisis worsened, a Senate committee Friday approved a $434 million tax increase, which includes a temporary 1-cent increase in the state sales tax rate and a 55-cent per pack increase in the cigarette tax.
The measure represents the first tax bill to address a ballooning revenue shortfall after cuts of nearly $1 billion to the state budget have shut down corrections facilities and slashed social services and education.
And the news got worse late Friday on the revenue front — April tax collections were down $65 million, or 10.2 percent, from an earlier estimate. Most of that was due to lower than projected state income tax receipts.
Gov. Mark Parkinson issued a statement saying the collections were disappointing but not surprising because they were based on 2009 tax returns and “2009 was a very bad year.”
Parkinson said the drop underscored the need for the state to provide services to the elderly, children and those with disabilities.
“Those in the Legislature continuing to advocate for a budget balanced solely on cuts, are either ignoring, or oblivious, to the real consequences to real people that those cuts would have,” he said.
The first major tax proposal of the session would increase the state sales tax from 5.3 cents per dollar to 6.3 cents per dollar on June 1. The rate would return to 5.6 cents per dollar July 1, 2013, and the revenue from the three-tenths of a cent would go to the state highway plan.
The cigarette tax would increase from 79 cents per pack to $1.34 per pack and the wholesale tax on tobacco products would increase from 10 percent to 40 percent. The plan would also eliminate an existing tax break for large businesses, while increasing a food sales tax rebate program for poor people.
The measure approved by the Senate Ways and Means Committee will be debated by the full Senate next week as the Legislature nears the end of the wrap-up session.
The new revenue under the plan would plug a budget hole and avoid more cuts to education and social services, supporters say.
Committee Chairman Jay Emler, R-Lindsborg, said he expected the bill to be changed during votes in the Senate and negotiations with the House. House Republican leaders oppose any state tax increase and have pushed a budget with more cuts.
To critics who say that the increase is too high, Emler said, “I can only remind them that we have cut a billion dollars over the last two years.”
The state has been mired in an unprecedented budget crisis as tax revenues plummeted during the recession.
But several committee members voiced opposition to the plan.
Sen. Pat Apple, R-Louisburg, said the sales and cigarette tax increases would hurt Kansas businesses along the border with Missouri, which has lower state taxes. “I’m really concerned about our competitive advantage,” Apple said.
Much of the committee discussion centered on a part of the bill that removes the state portion of a domestic production tax break for businesses. The move would produce $17 million for state coffers.
Sen. Mark Taddiken, R-Clifton, said that would hurt businesses in a struggling economy.
But others argued that the businesses would still get the federal tax break, which is increasing this year.
Allie Devine, vice president and general counsel of the Kansas Livestock Association, told the committee that removal of the state tax break wouldn’t be too bad.
“There’s a whole lot of stuff you could do that would be worse for us,” she said.
After the committee recommended the tax package, Senate Democratic Leader Anthony Hensley, of Topeka, said the bill represented “a good starting point.” Hensley and some House members are interested in adding increased state income tax rates on the most wealthy while lowering them for most other Kansans.