What had been a behind-the-scenes squabble among Republicans over Gov. Sam Brownback’s proposed tax package took center stage Wednesday at a meeting of the House Taxation Committee.
Several Republicans on the panel aggressively questioned Revenue Secretary Nick Jordan and others from the agency about provisions in the plan that would require many Kansans to pay more in taxes long before they received any benefit from the income tax cuts being proposed.
“I’m in favor of tax reductions in any way shape or form that I can get them, but this doesn’t look like a tax reduction,” said Rep. John Edmonds, a Great Bend Republican.
Rep. Arlen Siegfreid, an Olathe Republican, zeroed in on the main point of contention, questioning Jordan about why the governor proposed to make permanent a temporary increase in the sales tax passed by lawmakers during the recession to help make ends meet. The increase from 5.7 percent to 6.3 percent is scheduled to expire July 1 unless lawmakers vote to extend it.
“We’re kind of behind the eight ball politically on the sales tax,” Siegfreid said, explaining that Republicans who voted against the increase in 2010 are no more likely to vote for it today and that many who supported it then feel obligated to let it expire as promised.
“We’ve got a really hard sell from a political standpoint,” he said.
Brownback has said making the sales tax increase permanent and repealing income tax deductions for mortgage interest and real estate taxes are necessary to avoid a $503 million budget gap in fiscal year 2014. Together, those revenue-raising measures would raise a projected $442 million in the 2014 budget year and $356 million the next.
The anticipated budget shortfall is the byproduct of income tax cuts passed last year that are expected to significantly reduce revenue collections for the foreseeable future. Those cuts, the largest in state history, reduced individual income tax rates and eliminated income taxes for the owners of an estimated 191,000 businesses.
The Kansas Legislative Research Department has concluded that even if the measures now being proposed to replace some of the lost revenue were adopted, the state would face a budget shortfall of $781.5 million by the 2018 budget year.
Brownback has said he’s confident that the income tax cuts eventually will produce enough jobs and economic growth to replenish state coffers. But that scenario is too speculative to be accounted for in the official budget estimates compiled by the Legislature's research department.
Jordon, the administration official tasked with selling the new tax plan, urged legislators to evaluate it as a package of interconnected parts. He said the governor was committed to eliminating the income tax over time but doing it in a way that wouldn't require deep cuts to core government programs. That requires additional revenue, Jordan said.
Jordan said when the income tax rate reductions are fully implemented, they would save most Kansans more than they would pay in additional sales taxes or lose due to the repeal of the deductions.
Jordan said if he asked each member of the committee to spend $100 today for a $500 return later, “Most of you would take the deal.”
But Edmonds said the length of time Kansans would have to wait before they netted any savings made it a bad deal.
“It is $500 in eight years in exchange for $100 now,” he said. “That’s a long ways to go before you see any material benefit out of this.”
Keeping the sales tax increase on the books would generate $249 million in additional revenue in the coming budget year and $297 million the next. The only offsetting tax cut – a reduction in the bottom bracket income tax rate from 3 percent to 2.5 percent – would save Kansans a total of $37.9 million the first year and $128.1 million the following year.
The governor is proposing to further reduce the lower bracket income tax rate to 1.9 percent in 2016 and to drop the upper-bracket rate from 4.9 percent to 3.5 percent in 2017.
Siegfreid is one of many Republicans who support the governor’s plan to gradually eliminate the individual income tax. But he said he would prefer to offset the lost revenue with budget cuts instead of increases in other taxes. A coalition of moderate Republicans and Democrats is poised to oppose that strategy should it gain traction among conservatives.
Jordan said while the governor would prefer to avoid cutting “core state programs,” he’s willing to discuss alternatives.
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