TOPEKA A tax bill that would repeal many of the tax cuts Gov. Sam Brownback championed in 2012 easily passed the Kansas House Thursday, but by fewer votes than it received in a preliminary vote a day earlier.
The bill now heads to the Kansas Senate, which has already scheduled debate and a vote on Friday. The Senate is scheduled to convene at 8 a.m.
The bill would raise just over $1 billion in new revenue over the next two years by repealing, retroactive to Jan. 1, the so-called LLC loophole that exempts more than 330,000 farmers and business owners from paying taxes on their nonwage business income.
Also, effective next year, it raises income tax rates on many Kansans and reinstates a third income tax bracket for individuals earning more than $50,000 a year, or couples filing jointly who earn more than $100,000 a year.
Brownback issued a harshly critical statement on the bill Wednesday, saying it would “pummel the pocketbook of middle class families” and hurt small businesses, whom he called “Kansas job creators.” He stopped short, however, of saying he would veto the bill.
House Majority Leader Don Hineman, R-Dighton, declined to speculate on whether Brownback would veto the bill if it reaches his desk.
“We can just do what we can do,” he said. “We’ve taken that first step, and we’ll see what the Senate does now. Then it will be the governor’s decision.”
House Democratic Leader Jim Ward, of Wichita, said a family of four earning $50,000 a year would actually pay only about $22 in additional state taxes if the bill becomes law.
On Wednesday, 83 House members voted to advance the bill to final action. On that final action vote Thursday, however, seven members switched their votes from yes to no, including one Democrat, Rep. John Alcala, of Topeka.
The six Republicans who switched were Lonnie Clark, of Junction City; Willie Dove, of Bonner Springs; Mary Martha Good, of El Dorado; Greg Lakin, of Wichita; Les Mason, of McPherson; and Ken Rahjes, of Agra.
In addition, one Republican, Abraham Rafie, of Overland Park, switched from a no vote Wednesday to a yes vote Thursday.
A number of Democrats said in caucus meetings in recent days that they had a hard time voting for the bill because, in their view, it falls about $300 million short of what’s needed to structurally balance the budget over the next two years.
One of those was Rep. Tim Hodge, a freshman Democrat from Newton who was one of four Democrats who voted against the bill on final passage. He narrowly unseated incumbent conservative Rep. Marc Rhoades by a margin of just 228 votes in the November election. He said in a caucus meeting Wednesday that if he voted yes, he would be attacked from the right by people criticizing his vote for a large tax increase and from the left by people who would say it still wasn’t enough to fix the state’s budget problems.
Others said in caucus meetings that they believed Republicans were responsible for the fiscal crisis, and Republicans should be the ones required to fix it.
But House Minority Leader Jim Ward, of Wichita, had urged the caucus not to take that approach.
“Yeah, there’s a more perfect bill out there, but we didn’t sacrifice the good for the perfect,” Ward said.
Immediately after the tax bill passed, the House turned its attention to the other side of the state’s budget problems, a “rescission” bill aimed at closing the projected $320-$350 million shortfall in the remaining months of the current fiscal year’s budget.
On voice votes, the House advanced a pair of bills that largely mirror what Brownback had proposed at the start of the session: one authorizing the state to borrow $317 million of idle funds currently invested in the state pension fund; and a second bill authorizing the state to delay, or simply not make, certain payments that are due this year in order to leave the state with a positive ending balance on June 30.
Final action on those bills is scheduled for Friday and they are expected to pass easily, even though they include items that Republicans and Democrats alike have said they find distasteful.
“It’s not what we would prefer to do,” said Rep. Jene Vickrey, a conservative from Louisburg and former majority leader. “When you look at what the options are, it’s logical to borrow our own money rather than raise taxes or do cuts that are harmful to schools.”
Senate Republican leaders had proposed a package last week that would have borrowed only about $100 million from the idle funds account while cutting $198 million in state general fund spending, including $128 million from K-12 education.
The governor’s plan avoids any direct cuts by, in addition to borrowing from idle funds, not making a $92 million quarterly payment into the Kansas Public Employees Retirement System that was delayed last year, and skipping another quarterly payment this year. It also would delay a $75 million payment for K-12 schools that is due at the end of the fiscal year, pushing it back a few days so the payment isn’t made until after the new fiscal year beings.
Senate Democrats plan
The Senate spent Thursday debating an alternative plan put forth by Democrats that was thought to have some support from moderate Republicans. It failed, however, on a 10-30 vote with only one Republican, Sen. Randall Hardy, of Salina, voting in favor of it.
Hardy explained that he had campaigned on a promise to repeal the Brownback tax cuts, and he said the Democrats’ plan came closest to doing that.
Sen. Tom Holland, D-Baldwin City, carried the bill on the floor, something Democratic Leader Anthony Hensley said was “highly unusual, and maybe completely unprecedented.”
Holland began by thanking Senate President Susan Wagle, R-Wichita, for being an outspoken critic in recent months of Brownback’s tax policies. He then launched into a critique of the conservative Reagan-era economist Arthur Laffer, who advised Brownback in developing the 2012 tax cuts, suggesting that Laffer’s book “Eureka! How to Fix California” should have been titled “How to Screw Up Kansas.”
The Democrats’ bill had many similarities to the House plan but would have raised an estimated $1.2 billion over two years. And while it may have had support from some moderate Republicans when it was first introduced, much of that appeared to evaporate as soon as GOP leaders agreed to put the House plan on the floor immediately.
If it passes the Senate with no amendments, it would go straight to Brownback’s desk.
There were indications Thursday, however, that some conservatives will oppose the bill.
Sen. Ty Masterson, R-Andover, said he could not support any tax plan that raises taxes retroactively.
“Whether you agree with the change in law or not, retroactivity is unfair to our constituents at every level,” he said.