Panel hears opposition to raising taxes on the wealthy to pay for food sales tax cut
Topeka ? A House committee heard strong opposition Monday to the idea of raising taxes on wealthy individuals and corporations to pay for a reduction in the state sales tax on food.
Rep. Tim Hodge, R-North Newton, is the sponsor of four measures that he said would enable Kansas to cut its sales tax on food, which he said is currently the highest in the region at 6.5 percent.
“In 2012, we lowered income taxes on LLCs, and to make up for it, first we bankrupted our reserves just to pay our general expenses,” Hodge told the House Taxation Committee.
The committee heard testimony Monday on all four of Hodge’s bills, starting with House Bill 2616, which would cut the state’s sales tax rate on food in half to 3.25 percent starting July 1.
The bill would not apply to alcoholic beverages, candy, soft drinks, food sold through vending machines, dietary supplements or tobacco products.
The Kansas Department of Revenue estimates that would cost the state general fund about $163 million in the first fiscal year, plus another $31.4 million in sales tax revenue earmarked for the state highway fund.
Hodge, however, said the average Kansas household would save about $130 a year as a result of the bill, money that most consumers would spend purchasing other items that are subject to sales tax, thus offsetting at least some of that loss.
“That money will be spent here. That money will be an actual shot of adrenaline, to use a term, to our local communities,” Hodge said, borrowing a phrase former Gov. Sam Brownback used to promote his tax policies, which lawmakers effectively repealed last year by overriding his veto.
To pay for the cut in food sales taxes, Hodge has proposed House Bill 2618, which would raise the income tax rate to 10 percent on all income greater than $500,000 for an individual or $1 million for a married couple, which would generate an estimated $308 million a year.
He also introduced House Bill 2659, which would double the state sales tax rate on motor vehicles costing more than $100,000, generating an estimated $2.5 million a year, and House Bill 2661, which would raise the corporate income tax rate from 7 percent to 10 percent on income greater than $1 million.
Several organizations submitted written testimony in favor of lowering the sales tax rate on food, including the Douglas County Food Policy Council, which said it has made reducing and eliminating the sales tax on food one of its top priorities.
The conservative think tank Kansas Policy Institute also offered conditional support for the bill. But Dave Trabert, president of that organization, said any economic stimulus that results from cutting the food sales tax would be offset by the impact of raising taxes elsewhere.
“If you’re going to say we’re going to get economic growth from cutting the sales tax, you have to also understand you’re going to have economic losses from raising other taxes,” Trabert said. “This is not going to be any kind of economic stimulus because you have to pay for it.”
Trabert said Hodge’s proposal to raise income taxes on the most highly paid individuals would make Kansas third in the nation for the highest top marginal tax rate, behind only California and Hawaii.
“That is a ‘go away’ sign to the most mobile taxpayers in this state,” he said. “Go away. Don’t come here.”
Meanwhile, Tom Whitaker, executive director of the Kansas Motor Carriers Association, said Hodge’s bill to double the sales tax on expensive vehicles, as it is currently written, would also apply to commercial vehicles used in the construction industry.
Hodge explained that he only intended for the bill to apply to expensive passenger vehicles such as Maseratis, Lamborghinis and other kinds of European sports cars.
But Don McNeely, president of the Kansas Automobile Dealers Association, compared it to a federal tax on luxury items enacted during the Clinton administration in the early 1990s. He said it did not generate the revenue that was expected and only ended up hurting the industries that manufactured and sold those items.
Eric Stafford, lobbyist for the Kansas Chamber, expressed that group’s opposition to the package succinctly.
“We’re opposed to class warfare and we’re opposed to higher taxes on corporations,” he said.
After the hearings, committee chairman Rep. Steven Johnson, R-Assaria, said he did not plan to bring the bills up for a vote in the committee anytime soon, although he said that could change later this week when lawmakers receive a report on the estimated cost of complying with a Kansas Supreme Court order on school finance.