Kansas GOP leaders quietly molding tax plan

? Republican leaders in the Kansas Legislature are quietly trying to put together a package of tax measures to balance the state budget, but they say it will probably take until late next week before a plan is introduced.

“I think by the end of the week we may start to have a feel for what the solution possibilities could be,” House Taxation Committee chairman Rep. Marvin Kleeb, R-Olathe, said Wednesday.

Lawmakers returned to the Statehouse Wednesday after a three and a half week break for the start of what traditionally is a short wrap-up session. During the break, however, state budget officials released new figures dramatically lowering the estimated amount of revenue available next year.

Based on the budget that House and Senate negotiators have tentatively agreed to, and depending on what assumptions one makes about measures Gov. Sam Brownback has proposed but which lawmakers have not yet approved, the gap between anticipated spending and projected revenue in next year’s budget can be anywhere from $131.4 million to $807 million.

But the generally accepted figure in the Statehouse is $422 million, which assumes lawmakers will pass all of Brownback’s proposed fund transfers and “revenue adjustments,” except his proposed tax increases on alcohol and tobacco products.

Sen. Jim Denning, R-Overland Park, said he plans to propose a tax package that would include a significant change to one of the sweeping income tax cuts that lawmakers approved in 2012, the exemption for “pass-through income,” or the income that certain business owners receive from the operation of their businesses.

“Right now, there’s a way for all income to pass through tax-free, including owners’ wages,” Denning said. “That never was the legislative intent. So what my plan does is, I just use the Social Security wage base, which is $118,500, and say all the pass-through entities have to pay income on that amount, at a minimum. And then if they have income or working capital above that, then it can pass through tax-free, which was the legislative intent.”

Denning said that alone would generate about $160 million in additional revenue for the state. He is also proposing a slight increase in the state sales tax, and a tax on “passive” income such as rents and royalties. But he said he doesn’t yet have estimates of how much those measures would generate.

Kleeb said he has discussed that plan with Denning, and he believes some of it may make its way in to the final package.

“There are three or four ideas out there when it comes to a pass-through income tax solution,” he said. “All of them have some merit. All of them are heading in pretty much the same direction. It’s just some nuances of how to get there.”

But any change to the exemption for pass-through income is likely to meet stiff resistance from the Kansas business community. Last week, the National Federation of Independent Businesses began airing radio ads statewide, urging Kansans to call their legislators and oppose any such change.

And Brownback has said he does not want lawmakers to change course on income taxes, which he calls “a tax on productivity.” Instead, he wants to shift the state toward more reliance on “consumption taxes,” such as the sales tax.

The challenge for GOP leaders is to find a plan that both balances the budget and garners the necessary votes to pass both chambers: 63 in the House; and 21 in the Senate.

On one side, there are conservative Republicans who have taken campaign pledges never to vote for any tax increase.

“Just like there are liberal Democrats who will vote for nothing that maybe even remotely makes the governor look good,” said Sen. Ty Masterson, R-Augusta, who chairs the Senate budget committee. “There are people that are just heck-no’s on anything.”

But House Democratic Leader Tom Burroughs of Kansas City said most Democrats have not dug in their heels that far.

Asked what kind of tax package Democrats would support, Burroughs said, “One that’s fair, equitable and sustainable. That’s what we’ve stated from the very beginning and we still feel that way.”

“These small tax increases here and there, the fee increases that we’ve had presented to us throughout the session that have continued to be a stop-gap, a Band-Aid on a major wound, is not doing the job. We have to have a tax plan on the table that will bring long-term sustainability to the state economy.”