KHI News Service

House advances fixes to last year’s tax-cut law

But Democrats force Republicans to reject new Brownback tax plan in the process

By Jim McLean | February 08, 2013

Rep. Nile Dillmore, D-Wichita

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The Kansas House today gave tentative approval to a bill correcting mistakes made in last year’s law authorizing the largest tax cut in state history.

During debate on the measure, the chamber’s Republicans rebuffed a procedural move by Democrats to also force an early vote on Gov. Sam Brownback’s proposal to keep in place a sales tax increase passed in 2010.

Rep. Nile Dillmore, a Wichita Democrat, offered as an amendment to the cleanup bill the same July sales tax increase paired with a promise of future income tax decrease that the governor has proposed.

The governor’s plan already faces resistance from many in his own party who have signaled they prefer more cuts in state spending rather than backtracking on the Legislature’s promise to unwind the sales tax increase it passed in response to the depletion of state coffers during the economic recession that began hitting the state in earnest in 2008.

Dillmore’s amendment was aimed at putting Republicans on the spot as they work behind the scenes to resolve their differences.

“I can guarantee you that it will be a vote that will be brought up to you again and again,” Dillmore said.

The governor’s plan would make permanent the sales tax increase that is set to expire July 1. It also would generate dollars for state government by repealing income tax deductions Kansan taxpayers can claim to help offset their for mortgage interest and local property taxes.

The package would generate nearly $800 million in new revenue over the next two budget years while providing less than $170 million in tax reductions, according to estimates prepared for lawmakers by the Kansas Department of Revenue.

The governor’s proposal would reduce income tax rates in the bottom bracket from 3 to 2.5 percent in 2014 and 2015 and to 1.9 percent in 2016. No adjustments would be made in the top rate until 2017 when it would drop from 4.9 percent to 3.5 percent.

Revenue Secretary Nick Jordan has urged lawmakers to take a longer view, promising that the income tax cuts eventually would save Kansans more than they would pay in higher sales taxes or lose due to the eliminated deductions.

During the House debate, Rep. Richard Carlson, the St. Marys Republican who chairs the House Taxation Committee, called for rejection of Dillmore’s amendment so the tax panel could come up with an alternative to the governor’s plan.

“Give us the opportunity to work the bill in an orderly fashion in the House Taxation Committee and we’ll bring back a bill that I would certainly hope will be very similar to the governor’s bill in reducing taxes on investment income in the state of Kansas,” Carlson said.

The Dillmore amendment was rejected 118-0.

House members also rejected an amendment from Rep. Jim Ward, a Wichita Democrat, to restore a tax credit eliminated by last year’s law that helped low-income, working mothers pay for daycare. It was one of 19 tax credits eliminated or reduced in last year’s law.

The cleanup bill was designed to correct mistakes that could deprive business owners and investors of some of the tax breaks intended for them when last year’s legislation was approved.

“I think we should give working moms back their tax cut, too,” Ward said.

His amendment was defeated 88-30.

The House is scheduled to take final action Monday on House Bill 2059.

It would correct a problem related to how business ownership interests are valued and taxed. According to accountants, if the fix isn’t made it could increase the tax liability of some business owners that lawmakers intended to benefit with last year’s law.

Fixing the oversight would reduce state revenues by $8 million in the coming budget year, according to the Kansas Department of Revenue.

Another change in the bill would protect investors in bank holding companies and will cost the treasury an estimated $2.5 million in foregone tax collections. As currently written, the law doesn’t allow investors in bank holding companies to deduct their loses.

A similar clean-up bill awaits action in the Senate.

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