Topeka Gov. Sam Brownback hasn't ruled out having Kansas balance its budget by keeping its sales tax at the same rate rather than letting it drop next year as planned.
Brownback acknowledged Wednesday that he's anticipating state revenues will dip temporarily because of massive income tax cuts he signed into law earlier this year. He said a sales tax proposal remains a possibility but he won't make a decision until he sees how the budget picture develops.
The sales tax is 6.3 percent, but it's scheduled to drop to 5.7 percent in July. The state boosted the tax in 2010 — before Brownback took office — to protect public schools and social services spending, but pledged that most of the increase would be temporary.
Brownback pushed income tax cuts this year as a way to stimulate the state's economy, but the conservative Republican governor has faced criticism from Democrats for months that the aggressive package he signed into law will force the state to slash its spending in the future. Democrats also have speculated that Brownback is preparing to ask legislators to extend the current sales tax rate.
I'm not opposed to it," Brownback said. "It's just, let's see where we are in the budget."
Brownback proposed this year that the state keep its sales tax at 6.3 percent permanently, to offset income tax cuts he pursued and lessen their effects on the budget. Brownback argued that cutting income taxes would do more to stimulate the economy than lowering the sales tax.
But many legislators, including some Republicans, considered it important for the state to keep the promise that the sales tax would go down. Brownback's predecessor, Mark Parkinson, relied on fellow Democrats and moderate Republicans to get the GOP-dominated Legislature to boost the sales tax to 6.3 percent from 5.3 percent in 2010. Even after July 2013, part of the increase would remain in effect to help finance highway projects.
The Legislature's research staff has estimated that keeping the sales tax at 6.3 percent would raise at least $250 million in additional revenues a year after July 2013. But if Brownback pursued a sales tax proposal, he probably would face bipartisan criticism — in part because he strongly criticized the rise in the sales tax in 2010 while running for governor.
"I'm not surprised that he wants to use the sales tax, but at the same time, the Legislature made a promise that it should end," said Senate Ways and Means Committee Chairwoman Carolyn McGinn, a Sedgwick Republican. "I see it as a tax increase."
The tax cuts enacted this year will reduce individual income tax rates for 2013, dropping the top rate to 4.9 percent from 6.45 percent and exempting the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes. Legislative researchers estimate that the cuts will save taxpayers $231 million during the current budget year and more than $4.5 billion over the next six years.
Legislative researchers also project that the income tax cuts will create collective budget shortfalls approaching $2.5 billion over the next six years. Brownback and his allies view those projections as too pessimistic but Brownback acknowledged Wednesday that economic growth is likely to lag behind the tax cuts.
"There's going to be a two-year dip," Brownback said. "That's the nature of these, when you cut taxes. If you cut them right, you get growth on the other side, but there's a dip first."
In July, Brownback's budget director, Steve Anderson, instructed state agencies to prepare proposals for cutting up to 10 percent of their spending during the fiscal year that begins in July, though state aid to public schools was exempted.
Administration officials have said Anderson's instructions were only a hedge against fiscal uncertainty and noted that he also asked for current-resources proposals and requests for extra spending.
But Brownback's critics have said Anderson's instructions confirmed their fears about how the income tax cuts will affect the budget.
"This tax plan makes it impossible for the government to work," said Kansas Democratic Party Chairwoman Joan Wagnon, a former state revenue secretary. "It is absolutely scary."