Topeka The Kansas House approved a bill Thursday overhauling the state’s tax system, setting up talks with the Senate over cutting personal income tax rates and canceling a sales tax decrease to stabilize the budget.
The Republican-controlled House’s vote was 82-39 on a measure that would mandate small reductions in individual income tax rates in each year that overall state revenues grow by more than 2 percent. The bill also would allow the state sales tax to drop in July, as scheduled by law.
The measure goes next to the GOP-dominated Senate, but senators approved their own tax plan last week. The final version of tax legislation is likely to emerge from talks between the two chambers.
The Senate embraced proposals from Republican Gov. Sam Brownback to guarantee that personal income tax rates will decline over the next four years, and the reductions would be more aggressive than the House has proposed. Also, senators supported Brownback’s proposal to keep the sales tax at its current rate rather than allowing it to decline.
Like Brownback, most Republican legislators want to follow up on massive individual income tax cuts enacted last year and contend phasing out income taxes would permanently strengthen the state’s economy. But last year’s cuts created a projected budget shortfall, and the governor has promised to protect “core” programs.
Senate President Susan Wagle said negotiators will have to strongly consider keeping the sales tax at its current rate.
“There’s just no question about that,” said Wagle, a Wichita Republican. “Budget reality will set in at some point.”
Instead of keeping the sales tax at its current rate, the House bill originally diverted $382 million from highway projects over the next two years to other budget uses. But that idea inspired strong, bipartisan opposition, and House members dropped it from their bill.
House GOP leaders said even without using highway funds to cover general government operations, their plan wouldn’t cause a budget shortfall over the next two years, although the state’s cash reserves would dwindle. House Speaker Ray Merrick, a Stilwell Republican, said he believes the two chambers can compromise on the sales tax.
“I’m pleased,” Merrick said. “We’ve got some good positions, and we’ll just see.”
Brownback’s administration argues that further income tax cuts will create jobs and benefit everyone. Critics note that eliminating personal income taxes will force Kansas to rely most heavily on its sales tax to finance state government, and poor families tend to pay a higher proportion of their incomes to that tax than wealthy ones.
Much of what’s in the tax plans approved by both chambers actually raises revenues to bolster the budget. House Minority Leader Paul Davis, a Lawrence Democrat, said lawmakers have been “consumed” by the need to offset last year’s “reckless” income tax cuts.
“We are no closer to a solution that is fair, responsible, or fiscally sound,” Davis said in a statement following the House’s debate.
Keeping the sales tax at its current 6.3 percent rate would raise more than $1.5 billion over the next five years. It is supposed to drop to 5.7 percent in July. Legislators boosted the tax three years ago to balance the budget at the urging of Brownback’s predecessor, then-Democratic Gov. Mark Parkinson, but promised that most of the hike would be temporary.
Many lawmakers, particularly in the House, don’t want to break the pledge, but some GOP legislators are willing if income tax rates drop further.
Meanwhile, Brownback and the Senate want to decrease the state’s top income tax rate to 3.5 percent from 4.9 percent for 2017. Legislative researchers project that the top rate for 2017 under the House plan would be 4.88 percent.