‘March to zero’ likely to produce future budget shortfalls, GOP lawmakers concede

Sen. Marci Francisco, D-Lawrence, right, discusses tax issues with Sen. Jim Denning, R-Overland Park, on the floor of the Kansas Senate Tuesday, June 2, 2015, in Topeka.

? Republicans in the Kansas Senate began warning Tuesday that if the state doesn’t halt, or at least pause, the so-called “march to zero” on income taxes, future legislatures will face the same kind of budget crises lawmakers are grappling with today.

The “march to zero” is a phrase coined by Republican Gov. Sam Brownback for his plan to gradually phase out income taxes altogether. It began in 2012 with passage of a law drastically cutting income tax rates overall and eliminating income taxes altogether for more than 330,000 business owners.

But the law also contained provisions calling for tax rates to continue going down in future years. Now, even some Republicans who supported the 2012 tax cuts say those future tax cuts need to be slowed down, or even halted.

“If we don’t do that, whoever is here is going to face the same thing we’re facing this year, over and over and over again,” Sen. Les Donovan, chairman of the Senate’s tax committee, told his colleagues in a Republican caucus meeting Tuesday.

Under current law, individuals in Kansas pay 2.7 percent tax on the first $30,000 of taxable income and 4.6 percent for all income over that.

Those rates are scheduled to drop slightly in 2016 and 2017, followed by a steep drop in 2018, when the bottom rate will be 2.3 percent and the top rate drops to 3.9 percent.

According to a budget analysis distributed to Senate Republicans Tuesday, the tax plans being considered this year would leave the state with an ending balance of just $69 million at the end of the upcoming fiscal year. And if nothing is done to slow down the scheduled decrease in tax rates, the projected ending balances will fall to a mere $3.7 million by 2018, or 0.1 percent of state general fund spending.

“And then the gas pedal stays accelerated,” said Sen. Jim Denning, R-Overland Park, vice chairman of the Senate budget committee. “In 2019 and 2020, we keep on driving them down. I don’t think we’ll catch our breath. I think we need to pause, satisfy the bond markets, get everything stabilized. … But these hard cuts, it just seems a bit reckless.”

Throughout most of the ongoing debate at the Legislature, critics of Brownback’s tax policy have focused on the complete exemption given to business owners for the non-wage, pass-through income they earn from their businesses. That rule mainly applies to farmers and people involved in certain kinds of partnerships such as medical practices and law firms.

Brownback, however, has threatened to veto any tax bill that removes the exemption for non-wage business income. And during debate on the Senate floor Tuesday, Donovan — under pressure from hard-line fiscal conservatives in his party — was forced to promise that he would not accept any changes to that exemption during conference negotiations with the House.

According to the Kansas Department of Revenue, that exemption has so far cost the state $210 million to $220 million. The reduction in overall rates has been much more expensive — about $800 million so far, and probably more than $1 billion by the end of the next fiscal year.

Donovan, who will chair the Senate side of any conference committee on taxes, said the big question is whether Brownback will veto any plan that halts, or even pauses, the scheduled tax cuts.

“He might veto the bill,” he said. “That’s definitely one of his strong, strong selling points, but that needs to change.”

But Rep. Marvin Kleeb, R-Overland Park, who chairs the House tax committee, said he thinks Brownback will accept slowing down the tax cuts for wage earners.

“I know the governor isn’t giving up on the march to zero,” he said. “It just needs to be done in a less statutory manner.”