Topeka Revenue estimates show that House Republicans’ income tax plan would hike tax rates only for the lowest income earners in Kansas, which GOP leaders said Wednesday was an unforeseen consequence of a newly added amendment.
The estimates show that the plan would cost Kansas more than $850 million over the next five years, possibly creating budget issues in future years. The Associated Press exclusively obtained the figures from a legislative source who wasn’t authorized to publicly release the information.
House Speaker Mike O’Neal acknowledged that the amended plan, which was changed and approved Monday by the House Taxation Committee, hit the lowest tax bracket hardest. The tax increase was a result of changes made to the state’s earned income tax credit for low-income workers.
But he said he and other GOP leaders were looking at making changes before the bill reaches the full House for debate.
“That would be my preference. Obviously, the committee accepted an amendment that had that effect and we want to evaluate that to see if that needs to be changed,” said O’Neal, a Hutchinson Republican
House GOP leaders’ original plan would have given all taxpayers a break, and was an alternative to Republican Gov. Sam Brownback’s income tax proposal. But now, under both the amended House GOP plan and the governor’s proposal, the only group of taxpayers that would see a collective increase in their income taxes would be those with adjusted gross incomes of $25,000 or less.
The House GOP plan is less aggressive in cutting tax rates and helping businesses than Brownback’s plan, and it scales back a tax credit for poor workers, rather than eliminate it, as the governor proposed. Also, the plan keeps other income tax credits and deductions that Brownback said he would eliminate.
House Minority Leader Paul Davis said he hopes O’Neal and GOP leaders will rethink the bill’s impact.
“I hope that is their intent,” said Davis, a Lawrence Democrat. “But we have to look at the numbers and if they show there is a tax increase on the poorest Kansans, it is something that I don’t believe House members should support under any circumstances.”
The committee’s plan also reduces the state’s sales tax to 5.7 percent from 6.3 percent in July 2013, a promise lawmakers made in 2010 when they boosted the rate to help balance the state budget. Brownback had proposed keeping the rate at 6.3 percent to help offset other tax cuts.
The committee’s chairman, Rep. Richard Carlson, said dropping the sales tax would help working class families.
Acknowledging the effect of his committee’s amendment on income taxes, the St. Marys Republican said he and his fellow Republicans were considering trying to rewrite the plan so it more closely resembles what GOP leaders introduced. But, he said lawmakers should look at all Kansas residents “and take care of working-class families” in the income tax code.
Brownback proposed ending the tax credit for poor workers and using the savings to boost spending on services. Internal administration figures showed taxpayers with adjusted gross incomes of $25,000 or less would be the only group seeing a collective income tax increase, worth a total $88 million — or more than 5,100 percent.
The House GOP plan modifies that element, cutting the earned income tax credit for poor workers in half. The plan also proposes ending refunds greater than the taxes owed. For example, a worker who’s due a credit of $500 but has a tax liability of $100 would receive a $400 refund.
“I just don’t know why the Legislature would want to increase taxes on poor people who’ve probably have been hit hardest in this economic recession to pay for a tax cut for the wealthiest Kansans. It just doesn’t make sense,” Davis said.
O’Neal said the projections from the Department of Revenue on the impact to the state general fund were based on the assumption that none of the money taxpayers save from income tax cuts is spent in the economy, generating other tax revenues.
“That assumes they take the savings and bury it in a tin can in the backyard,” O’Neal said. “They have to project on a static basis, so we have to pretty much ignore those numbers.”
The GOP plan has also been criticized for its impact on the 2010 transportation program, which is funded by a 0.4 percent sales tax. The plan calls for freezing the funds at 2013 levels, what supporters are calling a $351 million loan, for two years to support spending on other government programs.
Increases in sales tax revenue would then resume to the highway plan in the remaining years of the 10-year plan.
The Senate Assessment and Taxation Committee will begin work on an income tax proposal early next month, said Chairman Sen. Les Donovan. The Wichita Republican presided over a committee that studied Brownback’s proposal, which was influenced by consulting from Arthur Laffer, the economic adviser who encouraged President Ronald Reagan’s supply-side economics plans.