Topeka — The Kansas Senate on Tuesday gave preliminary approval to proposed tax cuts after rejecting major portions of Gov. Sam Brownback’s tax overhaul.
“There may be enough of this carcass left,” said state Sen. Les Donovan, R-Wichita, who touted Brownback’s plan but then saw amendments approved that dismantled it.
Brownback, a Republican, has proposed reducing income tax rates and eliminating taxes for thousands of businesses. To offset those cuts, he wants to keep the state sales tax at 6.3 percent. But the Senate voted 29-11 to drop the sales tax to 5.7 percent next year, as current law requires.
Brownback’s plan would also eliminate many popular tax deductions, such as mortgage interest and charitable contributions. But the Senate voted 21-19 to put those and numerous other deductions back in.
Supporters of Brownback’s plan said the amendments passed by a bipartisan group were designed to kill the governor’s proposal.
“It’s disgraceful,” said state Sen. Julia Lynn, R-Olathe. “This body has systematically and deliberately picked apart a bill that is meant to address serious issues in our state. It’s not a joke.”
Brownback’s proposals will jump-start the economy and create jobs, supporters said.
But several legislators voiced disapproval of Brownback’s desire to keep the sales tax at 6.3 percent. The rate was approved in 2010 as a temporary hike to get state government through revenue declines during the recession and then go down to 5.7 percent on July 1, 2013.
“People are watching us to make sure we keep our promise,” said state Sen. Carolyn McGinn, R-Sedgwick.
But several senators who voted against the sales tax increase in 2010 voted to keep it higher now because they said the extra revenue was needed to reduce income tax rates. State Sen. Ty Masterson, R-Andover, said, “I will oppose anything that inhibits our ability to buy down rates.”
Supporters of Brownback’s tax plan also accused those who were changing it of “Christmas treeing up” the bill by adding measures that would make it impossible to implement because it would cut too much revenue.
The Senate proposal would continue Brownback’s plan to cut income tax rates and eliminate taxes on nonwage income for thousands of businesses formed as a limited liability corporation, chapter S corporation and sole proprietorship.
Senate Democratic Leader Anthony Hensley of Topeka said eliminating those business taxes was a major flaw.
“How is it fair that ‘Charlie Lunchbucket’ is going to continue paying income tax but a business with nonwage income won’t?” Hensley asked.
But state Sen. Susan Wagle, R-Wichita, said: “You have to take the job creator and give him a break.”
A final vote on the Senate plan will likely occur Wednesday. If approved, the measure will probably end up in a House-Senate conference committee. The House has approved a tax plan that contains some of Brownback’s proposal but added removal of the state sales tax on groceries, which would reduce revenue by more than $300 million per year.
Comments
autie 1 year, 8 months ago
When did tax breaks create jobs? huh? The bush era cuts sure didn't cut any taxes. But it sure shipped a lot of jobs overseas. I think we may see some sensible things now that most of the boys are wising up to the corporate oligarchy and it's evil plan.
verity 1 year, 8 months ago
I think it's been repeated often enough that now it's true. :*)
pittstatebb 1 year, 8 months ago
What I find interesting is that not one seems to be discussing the state exemption on non-wage income from LLC's, S corps, etc. There will be small unintended consequences that could quite possibly snowball if other states decide to adopt this same ideal.
Non W2 income (flow through of profits and the more nefarious distributions of profit) from these type of companies are taxed by the feds at your appropriate tax rate. However, Social Security and Medicare tax are not taken out of this income. This is a extremely gray area with the IRS. Can a business owner take no W2 income and only take distrubutions? The IRS will not say yes or no. This could net a business owner a 6.2% savings (well it should be 6.2, but is currently 4.2%) in taxes from the federal government.
I happen to be married to one of these business owners. We are not currently maxing out the amount of distrubtions that we could take (we still take mostly W2 income). However, if this type of income is not to be taxed by the state we will probably make that change (it would have saved us about 7K this past year in taxes from the state and FICA). And as both the House and Senate have passes tax reform bills with this provision, it will most likely happen in conference.
This means most of our income will not be subject to state income tax nor will we pay social security and medicare tax on it. I have a feeling there are a lot of business owners out there like us. This means there will be a lot less FICA paid by Kansas. . . and if other states follow Kansas, a lot less FICA paid all around. I am pretty sure that is not a good thing.
The only draw back I can see for the business owner is that you are reducing your wages for Social Security benefit calculations if you take no/less W2 income. Since I have been told not to plan on SS for retirement purposes, I am not sure which is better in the long run.
hyperinflate 1 year, 8 months ago
The IRS guidelines require that a Sub-S owner take W2 income commensurate with the reasonable market rate for the job he or she is performing. That includes being a passive manager-owner. Showing no W2 income at all is a great way to trigger an audit of a small business.
pittstatebb 1 year, 8 months ago
The gray area is that statement "commensurate with reasonable market rate". Ask two tax laywers/CPAs and you will get two different answers, ask three you get three, etc. What is a reasonable market rate? Most likely what the owner sets it at.
By the way, I totally agree with you. But have not been able to get a definite answer from either our tax lawyer or CPA as what that phrase means for our specific case.
Scut Farkus 1 year, 8 months ago
It's becoming apparent that a lot of Republicans are beginning to put some distance between themselves and Brownback. He has alienated too many voters and when his term comes to a crashing end they want to avoid the fallout.
jayhawklawrence 1 year, 8 months ago
There may be more to it than just alienating voters. It may be that it is becoming apparent that Brownback does not have the skills or natural mental faculties that the position requires and relying on faith in his conservative theo-political philosophy and like minded associates to guide his decisions is heading the state toward disaster.
Nobody wants to follow the Titanic to its predictable end.
deec 1 year, 8 months ago
Yup, and it will cost more and be an inferior education.
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