Topeka Kansas legislators on Thursday rewrote a plan for cutting income and sales taxes to alleviate concerns that the reductions would create future budget problems.
Three senators and three House members drafting the final version of the tax package agreed to changes that would prevent projected budget shortfalls over the next six years. Supporters of the cuts believe they'll stimulate economic growth, but they also said they want projections to show that the state would have at least a small budget surplus in July 2018.
As revised, the plan still would reduce individual income tax rates, but not as aggressively as negotiators previously had planned. The measure would phase out income taxes for 191,000 partnerships, sole proprietorships and other businesses and drop the sales tax to 5.7 percent in July 2013 from its present 6.3 percent.
Republican Gov. Sam Brownback, who endorsed the revised plan, has been pushing the GOP-controlled Legislature to reduce income taxes. But Democrats and some Republicans have feared large tax cuts would force the state to cut aid to public schools and spending on social services and other programs in the future.
The final tax package would provide about $60 million in tax relief for the fiscal year that begins July 1, with that figure rising to nearly $600 million annually by 2018. Supporters said that if the plan works as intended, additional economic growth will create new tax revenues more than offsetting the cuts.
"This is an extremely reasonable, well-thought-out tax plan," said Rep. Marvin Kleeb, an Overland Park Republican and one of the negotiators. "I think we should feel very good that we've done our due diligence in putting together a responsible package."
The House and Senate are expected to take up-or-down votes on the compromise plan next week. If they approve the measure, it would send it to Brownback, who had endorsed the earlier version.
The two Democratic negotiators remained skeptical and worried that projections from the Legislature's staff are too optimistic. They've also are critical of the business tax break, arguing that the plan will shift part of the state's income tax burden to poor and working-class families from the wealthy.
"We're creating a class of economic elites," said Rep. Nile Dillmore, a Wichita Democrat. "We're saying by virtue of the way you make your money, you don't have responsibilities that people who work for a living have."
But the Senate's lead negotiator, Les Donovan, a Wichita Republican, said the new tax break for businesses is likely to help small firms the most, and they will create new jobs. The plan will phase out taxes on some companies' income over five years.
"We have spent so much time on this and not making any headway," Donovan said. "It's time that we step forward and do something."
Legislative negotiators originally had agreed to drop the state's top individual income tax rate to 4.9 percent from 6.45 percent for 2013. Under the revised plan, the top rate will drop to 5.5 percent for 2013, then decline by increments to 4.9 percent for 2017.
"While we would prefer lower rates, this plan is a significant step in the right direction to increasing families' incomes and accelerates small business growth," Brownback spokeswoman Sherriene Jones-Sontag said in an email statement. "Governor Brownback encourages the Senate and House to take swift action on behalf of all Kansas taxpayers."
Without the changes in the plan, the nonpartisan Legislative Research Department had forecast that a budget shortfall would emerge by July 2015 and grow to $712 million by July 2018. With the revisions, legislative researchers projected a budget surplus of $165 million in July 2018.
The Legislature's staff and Brownback's administration disagreed about the methods used in making projections. The Department of Revenue issued a more optimistic forecast Wednesday evening showing that even if the tax plan didn't change, the state would still see a surplus of $138 million in July 2018.
Legislative negotiators opted to stick with their staff's projections for both future revenues and spending.
Even so, Sen. Tom Holland, a Baldwin City Democrat, noted that the Legislative Research Department's projections accept the Brownback administration's estimates for savings for a plan to overhaul the state's $2.9 billion-a-year Medicaid program, which covers health care for the poor, needy and disabled. The administration projects savings of $119 million a year by 2017, and Holland is skeptical that they'll materialize.