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First day back: New tax plan with old provisions moves forward; appointed senator takes seat
The Kansas Senate could vote as early as Tuesday on a new, revised tax package that is changed only slightly from the one Gov. Sam Brownback vetoed earlier in the session.
House and Senate negotiators met late in the afternoon on their first day back in session following a three-week break and quickly agreed to send the modified plan to the full chambers.
Like the earlier plan, it would reverse course on many of the signature income tax cuts that Brownback championed in 2012 and 2013 by reinstating a third, upper tax bracket and repealing the so-called LLC exemption that allows more than 330,000 business owners and farmers to pay no state taxes on their business income.
The major difference, though, is that the new individual tax rates would take effect July 1 of this year, instead of being retroactive to Jan. 1. Both Senate President Susan Wagle and Senate Majority Leader Jim Denning had cited that retroactive provision as reasons why they voted against the earlier bill, which came up three votes short of the two-thirds majority that was needed to override Brownback's veto.
Because of that change, the new plan would raise slightly less than the $1 billion over the next two years that the previous bill would have raised. But it remains to be seen whether it can reach the threshold of 27 votes in the Senate that it would need to overcome a virtually certain second veto by the governor.
Senate tax committee chairwoman Caryn Tyson, R-Parker, said she does not plan to vote for the bill, but added, "They said they have 27 without me."
Kansas currently has just two income tax brackets. For married couples filing jointly, they are 2.7 percent on the first $30,000 of taxable income and 4.6 percent on any income over that. For single tax filers, the cutoff point is $15,000 a year.
Under the new plan, the lower rate would remain the same. But in tax year 2018 the upper rate would rise to 5.45 percent, and a new, higher bracket of 5.49 percent would be created for taxable income over $100,000 a year. For single tax filers, the cutoff points would be one-half of those for married couples.
For the current tax year, 2017, the increases would only be half as large because the new rates would not take effect until the second half of the year. That means employers would start withholding at the new, higher rates, on July 1, but each person's tax liability for 2017 would only go up by half as much as it would for a full year.
"It is our hope that this will address the retroactive concern," said Rep. Steve Johnson, R-Asaria, who chairs the House tax committee. He said the major objection about a retroactive tax increase was that it would be difficult for employers and accountants to adjust payroll withholding mid-way through a year for a tax change that affects the entire year.
There was also concern, however, that waiting until Jan. 1, 2018, to make the change would fail to raise enough money to balance the budget for the fiscal year, which begins July 1, 2017, and ends June 30, 2018.
"We were trying to figure out a way, how do we move forward and still potentially balance the 2018 budget," Johnson said.
But Sen. Tom Holland of Baldwin City, the ranking Democrat on the Senate tax panel, said while it may be enough to fix the state's current budget shortfall, it does not raise enough money to add any new funding for K-12 public schools, which the Kansas Supreme Court has said are currently receiving inadequate funding.
"My uncomfortability with this plan here is that it does not in any way address the additional dollars we're going to need to satisfy the courts," Holland said. "In essence, we're asking legislators really to take two bites at the apple if they want to look at income tax to satisfy not only the structural deficit we have in the current budget but also to use those additional income tax dollars to fund schools."
But there is no guaranty that lawmakers will turn to income taxes again to fun a new school finance plan. During a meeting earlier in the day of the House tax committee, members talked about a number of other tax options such as higher cigarette taxes or levying retail sales taxes on certain kinds of services.
The income tax bill was structured so that the Senate has to vote on it first. House leaders insisted on that because the Senate is where the veto override attempt failed on the last bill. The override attempt succeeded in the House.
That means it may end up being the first meaningful vote of the Senate's newest member, Republican Richard Hilderbrand of Baxter Springs.
Hilderbrand was sworn into office Monday morning after being selected the previous night by Republican Party officials in the 13th District southeast Kansas to fill the vacant seat created when Jacob LaTurner was appointed state treasurer.
Senate GOP leaders said they knew little about Hilderbrand, a 48-year-old insurance agent who served five years on the Cherokee County Commission. He said he had to step down from that seat in 2015 after getting married and moving out of his district.
LaTurner had been considered a solid ally of Gov. Brownback's who voted against the previous tax bill and the attempt to override Brownback's veto. But speaking to reporters after his swearing-in, Hilderbrand gave little indication about his leanings on the major issues of the session.
"I support the constituents of District 13," he said. "I'm going to vote the way I feel best represents them."