What’s more important for Kansas today and in the future: strong schools, a solid social safety net or tax cuts?
That will be the debate this week as legislators approach the final days of the 2012 session.
The decision legislators make will affect Kansas for years to come.
Republican Gov. Sam Brownback is pushing the Republican-controlled Legislature hard for tax cuts, saying the cuts will turbo-blast the state economy.
Critics say the large tax cuts Brownback wants will deplete state coffers making it impossible for the state to adequately fund schools and social services, which have sustained cuts over the past few years during the recession.
The tax cuts, they say, also will shift the burden of paying for these functions to local governments resulting in an increase in property taxes.
The political backstory of the debate couldn’t be more intense as legislators also fight over redistricting.
Kansas is the last state in the nation to redraw political boundaries to adjust for population shifts over the past decade.
Those district lines will help determine who wins elections for the next decade.
Adjourning the House on Friday for the weekend, House Speaker Mike O’Neal, R-Hutchinson, told legislators to rest up because this week “could be a dandy.”
Brownback has been pushing since the start of session in January to cut state income and business taxes.
A proposal that has been approved by a House-Senate tax conference committee would reduce the top individual personal income tax rate from 6.45 percent to 5.5 percent for 2013 and then decline in increments to 4.9 percent for 2017, and it would drop the bottom tax rate from 3.5 percent to 3 percent. It would also put into place a tax break for businesses that Brownback said would be a shot of adrenaline to the heart of the economy.
“I think this is overall a good conference committee bill. I think this gets us on a growth curve from the modeling, from experience,” Brownback said. The cuts aren’t as aggressive as he initially proposed, Brownback said, dropping the adrenaline comparison. “The heart’s going to be pumping harder. Better, I should say, not harder.”
But others have said the business tax cut proposal is unwarranted, unprecedented and will have an unknown effect on state revenue. The measure would phase out state taxes on certain types of income for partnerships, sole proprietorships, limited liability companies, and corporations formed under Subchapter S.
“The new tax break would benefit large corporations and investment vehicles more than the small-business job creators the governor and legislative advocates claim they are trying to help,” a report by the Center on Budget and Policy Priorities said.
The Brownback administration maintains that the tax break will give businesses more money to invest and hire.
But Senate Vice President John Vratil, R-Leawood, said the idea that tax cuts will spur the economy is discredited supply-side economics.
“I am getting more emails saying do not cut my income tax if it is going to result in reductions in schools, public safety and highways,” Vratil said.
Opponents of the tax cut plan also are wary of estimates by the Brownback administration that its overhaul of the state’s Medicaid system will produce savings. If that assumption is wrong, the combined effect of traditional growth in Medicaid and the tax cuts will drive the state into huge deficits.
Moderates vs. conservatives
The conference committee tax plan will likely be voted on this week.
Essentially, the only obstacle to enacting the Brownback-endorsed tax plan are Democrats and moderate Republicans in the Senate. That group favors a plan with a smaller price tag that is aimed at controlling property taxes, restoring cuts to public schools and carrying through on current law to drop the state sales tax rate of 6.3 percent to 5.7 percent.
The moderate Republican leadership in the Senate is in the crosshairs of the conservative wing of the Republican Party, which is led by Brownback.
Conservative Republicans hold a solid majority in the House, but they are at a slight disadvantage in the Senate, and that is how the tax issue bleeds into redistricting.
Brownback’s allies want new Senate district boundaries drawn in a way that benefits conservative Republicans so that the Senate will be controlled by conservatives in 2013.
Asked point-blank if he was trying to oust moderate Republicans in the Senate through the redistricting process, Brownback gave a one-word answer: “No.”
But during debates in the Senate on redistricting, Brownback’s top staff have flooded the zone on the Senate floor. Republicans and Democrats have said Brownback has cast a long shadow on redistricting. In addition, the Kansas Chamber of Commerce political action committee is working to oust the moderates.
A nuclear option in the House
And if pressure from Brownback, the Kansas Chamber of Commerce, and the House weren’t enough, there is even more leverage against the moderates.
In March, the Senate killed a $3.7 billion, five-year tax cut, but then moderates reversed course after arm-twisting from Brownback’s office and sent the measure to the House-Senate conference committee to continue work on tax plans.
Now, if the Senate this week rejects the tax-cutting plan that has been approved by the conference committee, the House could simply concur with that more expensive plan already approved by the Senate and put that on Brownback’s desk for his signature.
Speaking to reporters last week, House Speaker O’Neal said he wasn’t making a threat but mentioned that scenario was a possibility.
“The administration tells us that they can make it work. It’s a lot of tax relief in a hurry, so you’d expect a quicker stimulus from that,” O’Neal said. He said he would prefer that not happen, but added, “It happens. Last week in the session, if that’s the only option left when you want to move forward, the option is used. And this wouldn’t be the first time.”