Some tax credits, exemptions may be on chopping block as state seeks revenue boost
Topeka ? A special legislative committee began two days of hearings Thursday to review dozens of various tax credits and exemptions, hoping possibly to find at least some that might be repealed in order to raise state revenues.
But it remained unclear Thursday whether the committee will even consider the one that has garnered the most attention and sparked huge controversy in recent years: the exemption enacted in 2012 that shields all personal income derived from certain kinds of business activity from state income taxes.
“It’s not (on the agenda) from what I can see,” said Sen. Tom Holland, D-Baldwin City, who serves on the Senate Taxation Committee. “But obviously, if we’re going to have an honest discussion about the effectiveness of tax policy, that needs to be the first thing we do immediately from my perspective. That’s what’s caused this mess in the first place.”
The panel opened its hearings just a few days after another monthly revenue report came out, showing that for the fourth month in a row tax revenues flowing into state coffers came up short of projections.
The cumulative total shortfall so far this year is estimated at $77.9 million, which means that even if revenues meet projections for the rest of the fiscal year, the state would likely end the year with a negative balance in its general fund, which is not allowed under the Kansas Constitution.
Meanwhile on Friday, state budget officials will gather behind closed doors to update those estimates, and it is widely expected they will lower the estimates for the current fiscal year, putting the state into an even deeper projected hole and possibly triggering another round of midyear “allotment” cuts in state spending.
The Legislature’s nonpartisan Research Department estimates that the exemption on so-called “pass-through” income from partnerships, sole proprietorships, limited liability corporations and the like are costing the state about $200 million a year.
Holland described the income tax cuts of 2012 and 2013 as “the 800-pound gorilla in the room.” But Sen. Ty Masterson, R-Andover, who chairs the special committee, disputed the significance of that tax exemption.
“You’ve got all your low-income (individuals) that are exempt, you’ve got all kinds of credits and exemptions. It’s only the media that makes that particular gorilla,” he said.
Republican Gov. Sam Brownback pushed for those tax cuts in 2012, arguing that they would spur business and job growth in the aftermath of the Great Recession, and that they would be “like a shot of adrenaline in the heart of the Kansas economy.”
Since then, however, job growth in Kansas has been slower than many states in the region, averaging less than 1 percent a year.
But Rep. Steve Brunk, R-Wichita, argued that even that amount of job growth is remarkable, given what has happened to the Sedgwick County job market since Boeing announced in 2012 that it was closing its military manufacturing facility and selling off its civilian aviation plant.
“Since Boeing has left, over this last period of time, I’m hearing (Wichita has lost) 30,000 aviation jobs, or related jobs, jobs supported by the aviation industry,” he said. “That’s a huge loss.”
The committee spent most of the day Thursday getting a primer on the history behind many of the tax credits and exemptions.
One credit they examined was the Earned Income Tax Credit, which sends tax refunds to lower-income working families, even if they have no tax liability.
But officials told the panel that cutting the “EITC,” as it is called, would be difficult because the state counts those refunds, about $46.9 million a year, toward its “maintenance of effort” requirement in order to qualify for about $102 million in federal funds for the Temporary Assistance to Needy Families, or TANF program.