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Legislature facing tough tax choices in 2013

December 26, 2012

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— The influential Kansas Chamber of Commerce and some conservative Republican legislators are considering canceling a scheduled decrease in the state sales tax, but only if lawmakers agree to another cut in the state’s income tax.

A first round of income tax cuts enacted in May and set to take effect Jan. 1 has left the state with a projected $295 million budget shortfall for the fiscal year that begins in July. The expected shortfall has led to speculation that Gov. Sam Brownback will propose keeping the state’s sales tax at 6.3 percent, and the conservative Republican governor hasn’t ruled out the idea.

The sales tax is set to drop to 5.7 percent in July because of a promise made in 2010 by legislators and Brownback’s predecessor, Democratic Gov. Mark Parkinson, when they increased the rate from 5.3 percent to 6.3 percent to avoid cutting aid to public schools, social services programs and other state spending. Legislators in both parties have said it’s important to keep the promise.

But conservative Republicans also want the Legislature to phase out individual and corporate income taxes, which they say will stimulate the economy. The Chamber of Commerce, which helped conservative Republicans win control of both the House and Senate in the November election, is waiting to see what Brownback proposes, but top officials said they might accept a sales tax freeze in return for lowering income taxes further.

That creates a dilemma for lawmakers who might normally consider a sales tax freeze the equivalent of a tax hike, but who also want to eliminate income taxes as quickly as possible. Legislators are expected to debate such a tax shift after they convene their 2013 session on Jan. 14.

“I’m open on the tax situation,” said Sen.-elect Steve Fitzgerald, a conservative Leavenworth Republican who’s been appointed to the budget-writing Ways and Means Committee. “Economic growth is THE issue, and taxes are part of it.”

Keeping the sales tax at 6.3 percent would raise at least $250 million a year in additional revenue. However, any such proposal, whether it’s tied to income tax cuts or not, would face strong opposition from Democrats.

They say income tax cuts mainly help the wealthy and relying more on the sales tax will hurt lower-income families by boosting the cost of groceries, clothing and other basic consumer goods.

“We’re going to put a bigger burden on working families,” said Rep.-elect Tom Sawyer of Wichita, who’ll serve as the ranking Democrat on the House Taxation Committee. “I think it’ll look bad if we go back on that promise.”

The income tax cuts due to take effect Jan. 1 drop the top individual income tax rate to 4.9 percent from 6.45 percent and exempt the owners of 191,000 businesses from income taxes. They are expected to cost the state an estimated $4.5 billion over the next six years.

Brownback initially proposed offsetting that loss by holding the sales tax rate at 6.3 percent and eliminating popular income tax deductions for charitable contributions and interest paid on home mortgages. But lawmakers rejected those ideas.

“It was either this or nothing, so it’s fine — I said, ‘All right, let’s go forward,” Brownback told The Associated Press during an interview last week. “If you’re growing, you’ve got a lot more options and a much more sustainable budget picture than if you say, ‘We’re going to keep our taxes where they are or raise them’ and further hurt your growth.”

Brownback said he still supports those ideas as a means to pay for the income tax cuts, and his budget director, Steve Anderson, suggested to conservative lawmakers earlier this month that a sales tax proposal is coming. However, Brownback wouldn’t confirm that he’ll push the idea.

The Kansas Chamber opposed the sales tax increase when it was enacted in 2010 because it was used to support state spending and not offset other tax cuts. Kent Eckles, the group’s vice president of government affairs, said the chamber opposes efforts to retain the current sales rate or boost other taxes to bolster the budget.

But he also said the chamber wants to eliminate state income taxes completely. If Brownback proposes exchanging a sales tax freeze for more income taxes, “we may be open to that,” he said.

Senate tax committee Chairman Les Donovan, a conservative Wichita Republican, said he wasn’t sure whether the GOP’s “super-conservatives” would go for such a plan.

But he added, “Would I trade an increase in the sales tax, personally, for a decrease in income taxes? Yeah.”

Comments

toe 1 year, 3 months ago

Raise sales taxes for school finance. If we go to 10% state plus local, we will also reduce consumption.

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Meatwad 1 year, 3 months ago

I'm in the middle. Spending cuts are needed, but NOT when it comes to early childhood development and education. And not when it comes to Planned Parenthood. What will happen is that you will gradually produce more and more poor and needy and we'll need more police, more jails. It's a cycle that will go on. The rich will be safe behind their high security walls, but crime rates will soar against the lower and middle class. We need more people in the middle. If the rich get richer, I don't believe it will just magically trickle down. So I hope people who only want the rich to get richer so it trickles down, get voted out. But we also need sensible spending that doesn't reward people for not working. It's sad that our legislature can't find a compromise and that no one seems to vote in primary elections anymore. When our schoolchildren lose and crime goes through the roof, then maybe people will come out and vote and pay attention.

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Larry Sturm 1 year, 3 months ago

Who is getting the shaft for the sales tax. People making $20 thousand pay the same percentage asw people making $20 million. Sound like the working people are getting the shaft again.

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bobberboy 1 year, 3 months ago

good ole boy browncrack and his buddies at the chamber of commerce comin' up with ways to get the poor to continue to foot the bill for the rich !! Good ole' boy - ain't he ?

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Richard Heckler 1 year, 3 months ago

Colorado saw the light and wiped out the TABOR approach after this method messed up Colorado economics.

But Norquist's drive shows signs of floundering.

"For businesses to be successful you need roads and you need higher education, both of which have gotten worse under TABOR and will continue to get worse," Tom Clark of the Denver Metro Chamber of Commerce told the Washington Monthly. "I'm a Republican," Clark said, "but I made the decision not to give any money to the state party."

Likewise, Colorado Governor Bill Owens is having trouble garnering support from his own party's legislators, most of whom know their constituents no longer believe TABOR is a good thing.

Funded by the Right

TABOR is a mutation of the Tax and Expenditure Limits (TELs) instituted in 28 states around the country over the past quarter-century, beginning with Proposition 4 in California in 1979. TABOR is like a conventional TEL on steroids: it has been pumped up with stricter spending limits and tighter restrictions on legislative action. Whereas TELs traditionally tied state government spending to faster-growing personal income, TABOR allows government budgets to grow only as fast as the population plus the inflation rate.

Furthermore, TABOR applies the population-plus-inflation adjustment to the prior year's actual expenditures, not to allowable or budgeted expenditures. So, as the CBPP notes, "when state budgets grow slowly or fall, as in the recent fiscal crisis, actual spending or revenues are likely to be lower than the level permitted by the formula. If this lower level becomes the new base … then the level of public services is permanently ratcheted down." Colorado's TABOR, the only one in effect so far, was also designed to be hard to reverse: only a ballot measure approved by the state's voters can do so.

Most of the financial backing for TABOR initiatives has come from antitax fanatics like Grover Norquist, White House insider and intellectual author of the Bush tax cuts, or brothers Charles and David Koch of oil pipeline conglomerate Koch Industries, heirs to their father's company and fortune. As co-owners of their $40 billion corporation, the Kochs have used their staggering resources to start an ultraconservative think tank designed to pump out ideological broadsides disguised as policy studies.

The Americans for Prosperity Foundation (AFPF) touts TABOR and other pieces of conservative legislation as overwhelming success stories, usually with validating data from like-minded (and like-funded) organizations.

TABOR is Coming - Dollars and Sense

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Richard Heckler 1 year, 3 months ago

The Governor Get's his Way BUT is it good for Kansas

With a heavy dose of persuasion and a shake of trickery, he convinced the Legislature to drastically reduce state income taxes.

His administration shook off concerns of “too much, too fast” and forged ahead with a massive privatization of the state’s Medicaid program.

And a political apparatus closely tied to the governor purged the Kansas Senate of most moderate Republicans, who had united with the small contingent of Democrats to block some of Brownback’s initiatives.

Two years into his first term, Brownback has the uber-conservative Legislature that he wanted and a glide path for more big changes.

Lawmakers are almost certain to pass an ill-advised bill giving the governor the authority to select judges for the state appeals court, injecting politics into a merit-based system that works.

Public school administrators and teachers are nervously awaiting a report from Brownback’s “school efficiency task force,” a committee top-heavy with accountants and light on educators.

More restrictions on abortion clinics and providers may be in the offing.

But even as he breaks new ground in 2013, Brownback and all of Kansas will be dealing with the fallout from 2012.

The income tax cuts that the governor and his allies fought for so passionately will create a deep hole in the state’s budget. The gap between revenues and expenses is projected to be $295 million — and that’s assuming the state spends down a reserve fund of $470 million, leaving no cushion for future years.

The Medicaid overhaul is scheduled to take effect on New Year’s Day, despite a deep-seated foreboding among medical and social service providers. Two weeks before the scheduled start of the new initiative, known as KanCare, some hospitals and physician groups had not yet signed up with all or any of the three private insurance companies selected to coordinate the care of 380,000 Medicaid recipients.

The insurance companies are ramping up, nevertheless, hiring dozens of employees from state-funded social service and medical support groups but at much higher salaries. Concerns are mounting about how the three managed care companies — Amerigroup, United Healthcare and Sunflower State Health Plan, a subsidiary of Centene — will pay their overhead and make a profit without reducing the amount of services Kansans rely on.

Massive budget and health care challenges will fall into the laps of a remarkably inexperienced Legislature. Thanks to redistricting and the purge of veteran moderate Republicans, nearly one-third of the state’s lawmakers will be serving their first terms.

Many of them were elected not on the basis of experience serving their communities but rather on the strength of their conservative credentials, which garnered funding from Brownback’s deep-pocketed benefactors.

Read more here: http://www.kansascity.com/2012/12/26/3982443/the-stars-editorial-gov-brownbacks.html#storylink=cpy

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skinny 1 year, 3 months ago

The taxes need to be cut in half and the Government need to make do with what they have. The taxes we pay these days is crazy. I have never seen so much BS in Government spending. Cut welfare, no sprinlker systems, no new vehicles every year, no new buildings ect.......

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Dave Trabert 1 year, 3 months ago

Eliminating the income tax is a worthy long term goal, but the immediate issue is implementing the tax reform already passed by making all aspects of government operate more efficiently. Reducing the cost of existing services, including public education, can be accomplished without impacting outcomes but it's hard work. It requires fortitude and political will to resist the pushback from state agencies and special interest groups.

Eliminating the income tax may require a slightly higher sales tax but the necessary rate cannot be established until government is first made to operate as efficiently as possible.

Kansas is by far the big spender in the region, with 2012 budgeted spending of $2,124 per resident compared to $1,579 for the states of Missouri, Colorado, Nebraska, Oklahoma and Texas. In fact, Kansas could reduce spending by $186 per resident to fully implement existing tax reform and STILL be the higher spender in the region.

Low taxes are the secret to strong economic growth and job creation, and efficient spending is the secret to having low taxes. Every state has essentially the same basket of services but some find ways to provide those services at a better price. See http://www.kansaspolicy.org/pressroom/commentary/100425.aspx for more details, including how low tax states have superior economic growth and job creation.

Spending less is NOT about eliminating services, it's about providing them at a better price.

Increasing the sales tax in 2013 might appease special interest groups that resist having government operate efficiently, but taxpayers deserve better.

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Liberty275 1 year, 3 months ago

State income taxes are a prime reason we are selling out and leaving a few years from now.

If Kansas deletes income taxes I might stay, just to hear you hippies complain. Now you have two reasons to get out there in that global-warmed -2 chill factor and picket.

I even have a cool slogan for you.

More Taxes!!! Less Liberty!!!

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yourworstnightmare 1 year, 3 months ago

"Man hits self in head with hammer, then complains of head pain".

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cummingshawk 1 year, 3 months ago

Gee, I don't remember seeing the Kansas Chamber of Commerce on the last ballot. So without being an elected representative, the KCC is considering canceling the decrease in sales tax? When did they become part of the Kansas government to make decisions affecting everybody statewide?

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cowboy 1 year, 3 months ago

More amateur economists wreak havoc on Kansas. Hold on to your shorts.

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question4u 1 year, 3 months ago

"The influential Kansas Chamber of Commerce and some conservative Republican legislators are considering canceling a scheduled decrease in the state sales tax..."

Sadly, this is probably no exaggeration of how un-American Kansas politics has become. Forget the idea of a government by and for the people. In Kansas it's the Chamber of Commerce that makes the decisions. You'd think that it would rankle Kansans to live in the equivalent of a banana republic, but apparently if you vote to hand your future over to the interests of corporations then living with the consequences doesn't feel as bad. Yes, your sales tax will be permanently higher, but you can feel good about the fact that business owners will be able to buy more vacation property in Colorado.

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just_another_bozo_on_this_bus 1 year, 3 months ago

Republicans ratchet up the class warfare.

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skinny 1 year, 3 months ago

You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.

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Greg Cooper 1 year, 3 months ago

Of course the Republicans would trade a sales tax increase for a decrease in income taxes. The trade-off would be far less noticeable to the upper-income buyers than to the lower- and middle income buyers.

Good grief, is there any reason to think that those with money would have any compassion for those with less? Not in this political climate. When the people who pay the most can not pay at all, then the Republican plan will be complete, except for the elimination of "entitlements" like food, clothing, that kind of thing.

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