Kansas Republicans Propose Major Tax Reforms

Kansas Republicans Propose Major Tax Reforms
January 30, 2012

Kansas House Republican leaders have unveiled the broad outlines of a major tax overhaul proposal that focuses on curbing state spending to reduce state income taxes, eliminating many taxes that small businesses pay, and accelerating the reduction of Kansas' 3.5 percent and 6.25 percent state income tax brackets for low- and moderate-income taxpayers.

The new proposal will join a plan, presented by Gov. Sam Brownback (R) in January, that cuts Kansas' top state income tax rates to below 5 percent while abolishing many tax credits and deductions taxpayers now claim, as well as a plan that has yet to emerge from a state Senate tax study committee.

The Kansas legislative session lasts 90 days. Whatever is proposed has to be heard in committees and debated on the floors of both the Senate and the House before being voted on. So there’s not much time, noted state Sen. Les Donovan (R-Wichita). Donovan chairs both the study committee and the Senate Assessment and Taxation Committee, the Senate's primary tax policy panel.

Details to Come

Few details of any of the three plans are known.

Still, Kansans will see a significant change in the state's income tax plan before legislators adjourn this spring, said House Speaker Mike O'Neal (R-Hutchinson).

"We see these plans as three different roads to the same destination," he said.

But Larry Halloran, a tax reform advocate from Mulvane, said all the plans discussed so far fall short of the bigger changes that Kansas needs.

"They offer half-measures when we need to take major steps," Halloran said.

Halloran favors scrapping all Kansas income taxes and imposing consumption taxes on goods and services. 

"For one thing, if we don't like what government does, a consumption tax gives us a means to shut off the money -- we just stop consuming," he said.

But Ken Daniel, who owns a Topeka building materials distribution company, said prospects for Kansas tax reform look promising.

May Keep More Profit

"I started my business 41 years ago, with $300," Daniel said. "It's worth $15 million today. We financed that growth with retained profits, which is what you do. And the governor's plan lets me retain more of those profits."

The plan House leaders outlined in late January includes some of the governor's proposed changes, including a requirement that any growth in general fund tax revenue exceeding 2 percent annually be used to reduce state income tax rates for filers in the two bottom brackets, which generally is those with household income of $30,000 or less.

Business Income Taxes Would Go

The House plan, like Brownback's, also calls for the elimination — as early as next year — of all state income taxes on business and rental income, royalties and similar income received by individual business owners, partners, limited liability company participants and small subchapter S corporation shareholders.

The the changes would refocus Kansas tax codes "on growing private sector businesses without adding to the burden of lower-income taxpayers," said state Rep. Richard Carlson (R- St. Mary's), who chairs the House Taxation Committee.

But unlike Brownback's plan, the House proposal won't abolish state income tax deductions for home mortgage interest or tax credits that return sales tax money that low-income Kansans pay for food and housing. The House proposal would allow a temporary sales tax increase to expire on schedule next year; Brownback proposed to make the increase permanent.

Medicaid Match

Like the governor's plan, the House proposal would eliminate the state's earned income tax credit that low-income wage earners can claim to help offset payroll taxes. Both plans call for investing the tax credit money, about $60 million, in Medicaid, so matching federal funds would raise the total increase in Kansas' revenues to $130 million.

Both the Medicaid enhancement and lower sales taxes would help low-income residents, said state Rep. Marvin Kleeb (R-Overland Park), the tax committee's vice chairman.

But the change will come as a jolt to low-income Kansans for whom the money is a tax-time boon, said Sister Therese Bangert, social justice coordinator of the Sisters of Charity of Leavenworth and a tax-time volunteer in Kansas City's inner city.

Gene Meyer (gene.meyer@kansasreporter.org) is state capitol reporter for KansasReporter.org, where a version of this article first appeared. Used with permission.