Topeka Gov. Sam Brownback said Wednesday that he would accept a flat-tax proposal pending in the Kansas Senate that also includes a repeal of one of his signature tax cuts from 2012, the complete exemption of taxes on certain kinds of nonwage income.
“The Senate’s flat tax legislation creates a single low tax rate for Kansans, solving today’s budget challenges without unnecessarily harming economic growth in Kansas,” Brownback said in a news release issued around 2:30 p.m. Wednesday. “If the legislature sends a bill to my desk similar in nature to (Senate Bill) 214, I will sign it.”
The Senate plans to debate the flat tax bill Thursday morning, but it remains uncertain whether supporters of the bill can muster the 21 votes needed to pass it.
That statement came during a day of fluid negotiations over tax policy and questions about whether lawmakers would even continue working through the week if no deal was reached.
It was also the first time Brownback has ever signaled that he would be willing to surrender the business tax exemption, which many call the “LLC loophole,” that has exempted more than 330,000 farmers and business owners from paying any state income tax on their business income.
Currently Kansas has two income brackets. Individuals pay 2.7 percent tax on the first $15,000 of income and 4.6 percent for all income above that. For couples filing jointly, the higher rate begins on income above $30,000 a year.
The flat-tax bill would tax all taxable income at the 4.6 percent rate, but it would also raise the standard deduction and several other kinds of deductions to match the federal income tax form. That means individuals earning less than $6,300 a year, or couples earning less than $12,500, would pay no state income taxes.
Kansas tax filers also could deduct 100 percent of the property taxes they pay instead of the 50 percent allowed now. They could also claim the same deduction for medical expenses allowed under current law, a deduction that Kansas lawmakers repealed for state income taxes in 2015.
It would also lower the state sales tax rate on food purchases by one percentage point, to 5.5 percent.
Sen. Caryn Tyson, R-Parker, who chairs the Senate tax committee, said passage of the bill would generate $295 million in additional revenue for the upcoming fiscal year that begins July 1 and $356 million in the following fiscal year.
That’s far less than the projected shortfall of nearly $800 million the state faces over the next two years, a shortfall that does not include any additional money the state may need for a new school finance formula.
Senate President Susan Wagle, R-Wichita, said lawmakers may also look at raising tobacco and alcohol taxes to generate additional money.
“I don’t think the Senate wants a retroactive income tax at this point in time, and we are short of money in 2018, so there is discussion about consumption taxes,” she told reporters after the caucus meeting.
While Senate Republicans were meeting in their caucus, a House committee working on a new school funding plan settled on a bill that would add $150 million in K-12 school funding for the upcoming school year.
Current discussions in the Senate have focused on raising cigarette taxes by $1 per pack and raising the “alcohol enforcement tax” — a kind of sales tax collected by restaurants, bars and liquor stores — to 10 percent instead of the current 8 percent.
Senate Majority Leader Jim Denning, R-Overland Park, said that would generate an estimated $85 million a year in additional revenue.
Earlier in the day, Senate GOP leaders startled the caucus by telling them that Brownback might issue his own tax proposal and that if he did, House and Senate leaders would immediately assign that bill to a conference committee. That sparked intense push-back from rank-and-file senators who said such a move would cut them out from having any input into the final bill.