Topeka Kansas was headed toward huge income tax cuts after conservative Republican Gov. Sam Brownback and the state Senate’s moderate GOP leaders couldn’t agree Saturday on lesser reductions to head off what some lawmakers feared would be a budget disaster.
Brownback and his allies believe that the state’s economy will get a big, jobs-creating boost from legislation already on his desk to cut individual income tax rates for 2013 and eliminate income taxes for 191,000 businesses. But they were willing to consider phasing in the cuts over six years to create what Brownback called “an easier glide path.”
Legislative leaders said Saturday morning that the tax debate was over and the most aggressive income tax cuts would stand. Hours later, discussions with Brownback’s office resumed but, then, almost as quickly, they ended without a deal, and the governor left the Statehouse.
“We’re not involved in any conversations at this point,” Brownback spokeswoman Sherriene Jones-Sontag said.
Lawmakers still had to complete a $14 billion budget for the next fiscal year to end their session, which was in its 98th day Saturday, eight more than scheduled. Legislators expected to leave another big task — redrawing political boundaries to reflect population shifts over the past decade — to a federal court.
Jones-Sontag said Brownback will have a ceremony Monday in Wichita to sign the conservative-backed tax cuts on his desk, which would be coupled with a sales tax reduction already planned for next year. The package is expected to provide $231 million in tax relief during the fiscal year that begins July 1, and the annual figure grows to $934 million in six years.
The Legislature’s research staff has projected that the cuts will lead to a budget shortfall by July 2014 and that the gap would balloon to nearly $2.5 billion by July 2018 if unchecked. But during a meeting of House Republicans, Brownback called their passage “a phenomenal accomplishment.”
“This will be a very aggressive pro-growth package,” he told reporters afterward. “For small business, which is your primary job-creating machine, this will have a very dynamic growth effect,” he said.
The Senate blocked debate Friday on a proposal to phase in the same income tax cuts awaiting Brownback’s signature. The less aggressive plan had emerged, with the governor’s encouragement, from negotiations.
Democrats and GOP moderates in the Senate still thought it would cause budget problems, despite projections from the Legislature’s staff forecasting budget surpluses at least through mid-2018.
Jones-Sontag said Brownback’s office offered a “global” agreement for senators providing additional money for public schools and even resolving redistricting issues — if senators accepted the phased-in tax cuts that they had refused to debate Friday.
“Some of our senators tried to negotiate a less dramatic tax cut,” said Senate President Steve Morris, a moderate Hugoton Republican. “Evidently, the governor wasn’t interested.”
The next fiscal year’s budget didn’t need much more tightening, because the state expects to have adequate cash reserves to cover the more aggressive tax cuts now on Brownback’s desk. But next year, legislators would be forced to close a budget shortfall, absent the robust growth predicted by supporters of the tax cuts.
“The state is going to be facing enormous deficits during the next several years,” House Minority Leader Paul Davis, a Lawrence Democrat, said during a news conference. “Everybody who is interested in the schools and social services and the transportation program and public safety needs to prepare for very significant cuts in the next couple of years.”
For 2013, the state’s top individual income tax rate would drop to 4.9 percent from 6.45 percent. The big tax break for businesses is targeted at partnerships, sole proprietorships and other small businesses, though critics believe many large companies will take advantage. Other changes in the income tax code are part of the bill on Brownback’s desk, with some deductions and credits being reduced or eliminated.
The sales tax will drop to 5.7 percent from 6.3 percent in July 2013. Lawmakers promised the reduction two years ago when they boosted the rate to close a budget shortfall, before Brownback took office.