Brownback outlines new tax plan to close budget gap

? Kansas would eliminate income taxes for 388,000 poor residents and raise taxes for business owners under proposals Republican Gov. Sam Brownback outlined Saturday to push lawmakers toward boosting sales and cigarette taxes to close a budget shortfall.

Brownback’s plan would raise $428 million during the fiscal year beginning July 1, a little more than what’s needed to close the budget gap. A majority of the new dollars would come from increasing the sales tax to 6.65 percent from 6.15 percent and the cigarette tax by 50 cents a pack, to $1.29 from 79 cents. The governor previously proposed increasing tobacco and alcohol taxes and said he was open to increasing the sales tax.

Disagreements among Republicans on tax issues have made the GOP-dominated Legislature’s annual session one of the longest in state history, at 100 days as of Saturday. The governor offered his new plan after he had said earlier in the week that he would let legislators draft their own solutions.

“I thought it was time to put something out,” Brownback said at a news conference.

The state’s budget problems arose after the GOP-dominated Legislature slashed personal income taxes in 2012 and 2013 at Brownback’s urging as an economic stimulus. Republican lawmakers are considering increases in business, sales, cigarette and even gasoline taxes but remain sharply divided.

House Republicans planned to review the governor’s plan Saturday afternoon, and their leaders held open the possibility of a debate on tax issues later in the day. The Senate planned to debate tax issues Sunday.

Brownback’s new proposal to end income taxes for some individuals earning up to $17,250 a year and couples earning up to $24,500 is an idea legislators haven’t considered. It would save those taxpayers $19 million during the next fiscal year — an average of about $49 a year.

Lawmakers have debated backtracking on a 2012 policy that allowed 281,000 business owners and 53,000 farmers to avoid income taxes on their profits. Brownback’s proposal would be a small move in that direction but less than legislators had considered.

A proposal before the House would raise $101 million during the next fiscal year by re-taxing business profits, and a plan the Senate rejected would have raised $82 million. Brownback’s business tax plan would raise just $24 million.

Kansas cut personal income tax rates in 2012 and 2013, and the exemption for business owners and farmers is expected to save them up to $220 million during the next fiscal year if lawmakers preserve it.

Critics argue the exemption is unfair because business owners escape income taxes while employees’ wages remain taxed.

Democratic Sen. Tom Holland, of Baldwin City, immediately dismissed the governor’s business-tax proposal as a “fig leaf.” Republican Rep. Mark Hutton of Wichita said Brownback’s proposal is structured so that businesses easily could use accounting maneuvers to still avoid taxes.

“That’s a bogus deal,” he said.

But officials with the Kansas Chamber of Commerce and the National Federation of Independent Business said Saturday that their groups would find the governor’s proposal acceptable after they lobbied hard to preserve it.

“This is better than most of the plans we’re seeing out there,” chamber President and CEO Mike O’Neal said.

Lawmakers’ proposals for increasing the cigarette tax have hovered around the 50 cent-per-pack increase Brownback is proposing.

GOP legislators have debated proposals to increase the sales tax to as much as 7.15 percent, and GOP senators floated a proposal Saturday to raise it to 6.95 percent. Some don’t think there’s enough support to go above 6.5 percent.

Only eight states have rates above 6.5 percent. Republican Sen. Greg Smith of Overland Park said he wants to eliminate some of the dozens of exemptions to the tax instead of increasing the rate, a position other GOP senators have taken.

Reaction from Lawrence-area lawmakers

Rep. Boog Highberger , D-Lawrence

“The Governor’s proposed budget is really just more of the same — it continues this administration’s attempt to balance the budget on the backs of the poor and the middle class. While it does include a couple of small steps in the right the direction, it still relies almost entirely on a sales tax increase and on temporary fixes like a one-time tax “amnesty.” It keeps almost all of income tax exemption for pass-through entities, which was sold as a “small business” tax break, but in reality 83% of the benefit goes to the biggest 6.5% of the filers who claim the exemption and 42% goes to less than 1% of them. I am willing to vote for a tax bill that is fair, sustainable, and raises the revenue necessary to make the investments we need to make to ensure a prosperous future for our children. The Governor’s plan does not do that.”

Rep. Tom Sloan, R-Lawrence

“Based on a quick examination of the Governor’s proposed tax plan, I continue to believe the State and all its citizens benefit from the traditional “3 legged stool” of revenues. A balance between property, sales, and income taxes with user fees (e.g., on motor fuels) most responsibly provides the revenues necessary to operate government programs that serve the people and that is equitable for the taxpayers.

“An increase of 1/2 cent in the State sales tax rate will compound financial problems for all middle and lower income families and there are many who question whether the proposed tax amnesty will raise the $30 million promised.

“It is attractive to want lower income taxes, but it is important to look long term to our communities’ and State’s future. All parents want educational systems that offer opportunities for our children, employers want an educated workforce that will be productive, we all want an effective law enforcement and independent Judicial system to protect us, and we all want to lend a helping hand to those in need. Trying to pay for the essential State programs that we want and need using only sales and property taxes is, in my opinion, not responsible fiscally or policy wise.”

Rep. John Wilson, D-Lawrence

“Governor Brownback’s proposal to raise taxes is shameful, and highlights his inability to govern effectively — and it took him 100 days to come up with it! The substantial increase in sales tax will disproportionately impact low-income Kansans and essentially negate the income tax cut proposed for them under this irresponsible plan.

“In Lawrence, we’ll see our sales tax on everything, including food, jump to 9.2 percent. Governor Brownback’s so-called “march to zero” income tax plan is simply a tax shift in which big businesses and millionaires get special treatment at the expense of the rest of us, especially Kansas schoolchildren.

“And, by the way, these changes aren’t sustainable — the tax increases proposed by Governor Brownback won’t generate enough to keep our state functioning for the long haul.”

Sen. Marci Francisco, D-Lawrence

“I appreciate the governor weighing in on a tax plan — to meet the budget that is being discussed, the Legislature will need to find a way to raise revenue. I continue to object, however, to trying to fill a hole, and continuing to expand the hole, that was created by lowering income taxes with an increase in sales and use taxes.

“The governor said he is willing to look at some tax on currently exempt business income, however the tax he is proposing on ‘guaranteed payments’ can be easily avoided and will not give any relief to businesses who are reporting a loss. The proposed low-income tax ‘exclusion’ creates an unfair ‘cliff,’ may not make up for the increase in sales taxes paid by those same low-income filers, and does not provide much relief: The cost is less than a third of the estimate to reinstate the refundable portion of the food sales tax rebate.

“The end result of adopting this plan would be continued shortfalls in the future. The Legislature should continue to work to find a plan to raise revenue that is fair, balanced and stable; these proposals are not.”

Sen. Tom Holland, D-Baldwin City

“The governor’s tax increase plan is a $2.2 billion tax increase over five years that further shifts the tax burden onto middle and lower-class Kansans.

“This tax increase ironically sets Kansas up for future budget deficits. The plan, while delaying, still provides for future income tax rate cuts. The plan also does not address the additional inequities introduced into Kansas’ tax code following the 2012 session as a result of adopted business non-wage income tax exemption policies.

“While I think it is beneficial to the Legislature that Governor Brownback has decided to provide a tax increase plan, I do wonder why he has waited until the 100th day of the session to provide direction.”