Impact of tax veto override will be felt for years in Kansas

Kansans woke up Wednesday morning to a state that was dramatically transformed overnight in ways that will affect them for years to come.

The Kansas Legislature’s decision the night before to override Gov. Sam Brownback’s veto of a bill reversing his signature tax policies will have an almost immediate impact on their paychecks. The override will also have long-term effects on the state’s ability to fund public schools and maintain its roads. And it will have far-reaching consequences on Brownback’s own political legacy and on the political trajectory of the state.

People who work for a paycheck will start seeing smaller checks almost immediately. Starting July 1, employers will start withholding at the new higher rates. For individuals, that means 3.1 percent on the first $15,000 a year of income; 5.25 percent on the next $15,000; and 5.7 percent on any income over that. For married couples filing jointly, the income thresholds are double those for individuals.

Currently, there are only two tax brackets: 2.7 percent on the first $15,000 and 4.6 percent on all income above that. Those were scheduled to go down next year under the so-called “glide path to zero” formula. But while the new rates are higher across the board, they are still lower than they were before the sweeping tax cuts were enacted in 2012.

For wage earners, the new tax rates take effect on July 1. So the increase in rates for tax year 2017 is only half the full amount. But employers will start withholding at the full rate to make up for the fact that the entire increase has to be paid in the second half of the year.

People who are self-employed or own small businesses, however, will want to start doing some tax planning immediately, because for them the new rates are retroactive to Jan. 1. Those are the roughly 330,000 people who, since 2013, have not paid any state income taxes on their nonwage business income under what came to be known as the “LLC exemption.”

In addition to the higher rates, however, the law also phases back in some deductions and exemptions that were either reduced or eliminated under the 2012 tax plan, starting with deductions for medical expenses, mortgage interest and property taxes paid. It also will phase back in the child and dependent care tax credit that was eliminated in 2012.

According to budget experts, the changes will generate $591 million in the fiscal year that begins July 1 and $633 million in the following fiscal year for a grand total of a little more than $1.2 billion. Opinions differ widely on how much of an impact that will have on the Kansas economy and on state government.

Responding to the override Wednesday morning, Brownback refused to answer questions from reporters. But in a long, almost stream-of-consciousness statement, he claimed the tax cuts had been a boost to the economy, while simultaneously arguing that the state’s financial problems are the result of a weak economy being dragged down by low agricultural and energy commodity prices.

Nevertheless, he left no doubt that he thinks the Legislature made the wrong decision, and said he thinks it was simply the result of a lengthy legislative session that has tried the patience of lawmakers.

“This isn’t the right way to go,” Brownback said. “There was another way. And we kept working with people but that just wasn’t in the cards and was difficult to happen, and you get late in the session, and I think a number of people threw their hands up and said this is the only way to go.”

“The unfortunate thing is that it’s a bad way to go, and we’re going to have long-term negative consequences for the economy of this state and for the people of Kansas going this route,” he said.

Lawmakers from the Lawrence area, all of whom supported the veto override, gave quite a different assessment.

Sen. Tom Holland, D-Baldwin City, disputed the idea that the override was the result of lawmakers being tired and frustrated near the end of a long session.

“I think the elections in November were very critical for people letting their elected representatives know that they weren’t happy with the governor’s plans,” he said immediately after the House’s vote. “So here we are tonight. I think it’s a good win for Kansas citizens.”

Rep. Barbara Ballard, D-Lawrence, said that without the tax bill, lawmakers would have had to make devastating cuts in funding for state services.

“It was looming heavy with Osawatomie (State Hospital),” she said, referring to the state psychiatric hospital that recently lost its certification to qualify for Medicare reimbursements. “Until we get those 60 beds certified again, it’s $1 million a month. And so we were worried about that.”

Rep. Tom Sloan, R-Lawrence, acknowledged that as large as the tax increase is, it probably still isn’t enough to pull the state out of the financial hole that has been dug since 2012.

“Long term, we cannot undo the damage of inadequate revenues,” Sloan said. “And as was pointed out, we’re not fully funding the state retirement plan using these revenues, and we have to. That’s an obligation. So basically, this is a heck of a good start at undoing the damage that was caused by five or six years of failed tax policies.”

And as for the future of Kansas politics, many observers said the veto override was a watershed moment that will define Brownback’s political legacy because it represents a complete repudiation of the signature policy that Brownback himself had hoped would define him in history.

“I think when historians look back, Gov. Brownback talked about the lost decade, 2000-2010, when we had the double recessions and hits to our aerospace industry in Wichita,” Holland said. “The years 2010-2020, in my mind, that’s going to be the lost decade for where we could have been had we not gone down this disastrous path to zero income taxes.”