Tax Movement and KPERS

May 13, 2015 by

House Tax Committee Kicks Out New Tax Bill

After yesterday’s long back and forth over competing tax plans, the House Committee this morning amended a plan developed by Representatives Hedke (R-Wichita) and Kelley (R-Arkansas City) into SB 270 and sent it on without recommendation to the full House. We can’t say for sure when the House will have the bill for debate but we are getting awfully close to the 90th day of the 90 day legislative session.

Here are the details of the proposal as we understand them:

  • Increase the sales tax to 6.85% with food at 5.9%.
  • Eliminate income tax deductions except for mortgage interest, property taxes paid, and charitable contributions and accelerate the “haircuts” on those.
  • Adopt the tax amnesty proposal.
  • Drop the bottom income tax rate from 2.7% to 2.55%.

The plan does not change the income tax exemption for businesses that was passed in 2012.

The battle is between those – like Hedke, Kelley, and Brunk (R-Wichita) – who won’t support plans that change the exemption that has allowed over 330,000 Kansas businesses to pay no income tax at all and those – like Hutton (R-Wichita) – who think there needs to be some shared sacrifice. The plan by Hutton would have increased sales taxes but also pared back the business income tax exemption.

During the debate this morning, Rep. Hutton expressed great concern about the plan saying that it seemed to him to be wrong “to increase sales taxes by $271 million just to preserve a business income tax cut of $100 million.” Rep. Sawyer (D-Wichita) told the committee he found it wrong to balance the budget on the backs of seniors and the working poor.

One of the other concerns legislators had with the plan is that it does not provide for a sufficient ending balance. Rep. Kelley responded to this concern by saying that it was not the Tax Committee’s responsibility to “pad the ending balance” but only to balance the budget. “If there is a desire for an ending balance then it is up to the Appropriations Committee to deal with that.” Essentially, this means the Appropriations Committee should simply enact budget cuts to create an ending balance.

This bill must now be sent to the full House for debate and action. It can be amended on the House floor.

The question hovering under the dome is how the full House might deal with this proposal. Legislators know that the Kansas Chamber and Americans for Prosperity are opposing all tax increases but they might prefer this bill to one that taxed businesses or wealthy Kansans. All legislators know that KCC and AFP are known for brutal campaign attacks on the legislators that supported the 2010 sales tax increase leading to the ouster of moderate Republicans.

  • How will KCC and AFP treat no-tax-pledge Republicans that vote for this tax increase?
  • How will those legislators who have steadfastly insisted that there is no revenue problem, only a spending problem, vote on this plan?
  • Since Democrats and Moderate Republicans will be attacked regardless of their votes, what interest do they have in helping Governor Brownback get out of a problem of his creating, especially if that help raises taxes on the middle class and working poor?
  • For legislators who want to fix the problem, why should they vote for a large tax increase that leaves no ending balance and might result in budget cuts from the Governor’s office after the legislature goes home – a tax increase that did not solve the problem?

So much to think about!

Meanwhile, over in the Senate…

The Senate Assessment and Taxation Committee cancelled today’s meeting so no action has been taken on the plan created yesterday in that committee. They have scheduled a meeting for tomorrow at 1:00. We’ll be watching to see what becomes of their proposal.

KNEA on tax policy

KNEA has a consistent position on tax policy. We believe that Kansas is best served by a balanced three-legged stool of taxes. The mix needs to consist of income, sales, and property taxes in balance. This is the only way to ensure that tax policy is fair and that everyone pays their fair share in taxes to support quality state services. We oppose the so-called “glide path to zero” under which the income tax – the one progressive source of revenue – is phased out.

KPERS conference committee agrees on working after retirement

The KPERS Conference Committee met this afternoon and agreed on the working after retirement bill that was crafted by the Senate Select Committee on Pensions.

This plan raises the earnings cap to $25,000 and enacts restrictions on who can work after retirement in the schools. Hiring retirees to work in KPERS covered professional positions will be allowed in special education and up to five areas identified as shortage areas by the State Board of Education and allow for special “hardship” positions identified by school districts that have tried to find new employees but cannot.

Current retirees working after retirement are grandfathered until 2017 when all retirees will be under the new rules.

The change was in reaction to information that KPERS was taking a loss for every retiree between the ages of 55 and 62 who return to work and that pre-arranged agreements jeopardized the tax status of KPERS. There was no appetite to simply lift the sunset on current rules and extend them.

The report now must be approved by both chambers.

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A Taxing Day!

May 12, 2015 by

Taxes and plans to address the roughly $400 million budget gap consumed the day.

The House Tax Committee started at 9:00 am and met most of the day. Their meeting started with a motion to put Rep. Kleeb’s “global solution” into SB 270. But immediately, Rep. Brunk offered a substitute motion with his own solution.

The Kleeb “Global Solution” Plan would:

  • Tax passive business income at 4.6% and other business income at 2.7% (this would end the situation under which over 330,000 Kansas businesses pay no income tax at all).
  • Accelerate itemized deduction “haircuts” – a recommendation from the Governor.
  • Increase sales tax to 6.5% while reducing it on food to 5.9%.
  • Increase the motor fuel tax by $0.05 per gallon.
  • Increase the cigarette tax by $0.75 per pack.

Brunk’s proposal would:

  • Raise the sales tax on everything to 7.15%.
  • Eliminate all itemized deductions except mortgage interest, property taxes paid, and charitable contributions.
  • Drop the bottom income tax rate from 2.7% to 2.55%.
  • Keep the 330,000 businesses exempt from income tax.

Brunk’s proposal failed on a voice vote after which Rep. Rhoades offered a modified Brunk proposal.

The Rhoades proposal included all of Brunk’s but added the Governor’s tax amnesty proposal and dropped the food sales tax to 5.9%. The Rhoades plan failed on a 9 to 11 vote.

Next came a plan from Rep. Hutton. The Hutton plan would:

  • Tax the exempt businesses at 2.55%.
  • Raise the sales tax to 6.8% with food at 5.9%.
  • Eliminate all itemized deductions except mortgage interest, property taxes paid, and charitable contributions.
  • Drop the bottom income tax rate from 2.7% to 2.55%.
  • Include the Governor’s tax amnesty proposal.

The Hutton plan failed on a vote of 4 to 16.

At this point the House Tax Committee broke until 3:30 as the staff was due in a Senate Tax Committee meeting.

The Senate Assessment and Taxation Committee was given a proposal by Senator Donovan.

The Donovan plan would:

  • Replace the non-wage business income tax exemption with a payroll credit (this costs the state far less than the income tax exemption).
  • Raise the sales tax to 6.5% with food at 6.0%.
  • Repeal the homestead exemption from the 20 mill school levy.
  • Add the 20 mill levy to car property tax.
  • Increase the cigarette tax by $0.50 per pack
  • Accelerate itemized deduction “haircuts” – a recommendation from the Governor.
  • Increase the motor fuel tax by $0.05 per gallon.
  • Increase the liquor enforcement tax to 10%.
  • Increase the liquor gallonage tax (various levels).
  • Increase the tobacco products tax to 15%.
  • Include the Governor’s tax amnesty proposal.

Donovan had trouble getting someone to offer his plan (as the chair he doesn’t make the motion) but eventually Sen. Powell made a motion to insert the Donovan plan into HB 2109. After a long pause, Sen. Bruce seconded the motion.

The motion appeared to fail on a vote of 5 to 5 with Sen. Peterson apparently not voting.

The Committee adjourned but after a brief time on the floor, Donovan announced a meeting “at the rail” to correct his mistake in counting the vote. They voted again and the motion passed 6 to 5.

At this point the only motion was to put the proposal into HB 2109. It has not yet been passed out of committee.

Back then to the House Tax Committee where Rep. Kleeb asked the members to get any plans they had to the staff so that the numbers could be crunched over night. The Committee then adjourned until 8:30 tomorrow morning.

So after a full day in Tax Committees, a tax plan to address the budget gap has yet to pass either committee. Perhaps tomorrow!

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Slow Going on Solutions to Budget Problems

May 11, 2015 by

No solution in sight yet

It’s another quiet day under the dome. We are in a holding pattern while legislators grapple with the every-increasing budget hole they have to fill.

While there have been some proposals to raise revenue, there hasn’t yet been enough done to overcome the drops experienced thanks to Governor Brownback’s reckless income tax cuts of 2012 and 2013.

Talk continues about changing the income tax cuts given to LLC’s under which 330,000 Kansas businesses have been allowed to pay no income tax at all. There is a proposal to limit this provision to those businesses that hire people. This has the potential to close about half of the hole in this year’s budget.

Other proposals focus on “consumption taxes” including one proposal to raise the state sales tax from the current 6.15% to 6.5%. The governor has suggested raising taxes on tobacco and liquor and instituting a tax amnesty program for those who owe back taxes, letting them pay without penalty.

So far though, the biggest push-back to these proposals has come from those who backed the anti-tax conservatives in their elections. Americans for Prosperity, the Kansas Chamber of Commerce, the Kansas Policy Institute, and the National Federation of Independent Businesses have been vocal opponents to any tax increases.

The situation in Kansas continues to make national headlines. Most recently a Washington Post editorial has been appearing in newspapers around the nation. Calling Kansas an “instructive educational mess,” the editorial focuses on the damage being done to public education citing it as a reason to be wary of proposals to go down the same path as our state. We’ve found it so far in North Carolina and Illinois newspapers. Read it by clicking here.

KPERS “spiking” bill has hearing

HB 2426, a bill that would limit accumulated leave for KPERS covered employees, had a hearing today in the House Commerce Committee.

At issue is what some legislators refer to as “spiking” for the purposes of increasing the retirement benefit. They allege it happens when employees accumulate large amounts of leave time which is paid to them upon retirement thus raising the final average salary for the calculation of benefits. By limiting the amount of accumulated leave, legislators would limit the chances that this could happen.

Limiting leave accumulation however creates other unintended consequences such as leaving employees without sufficient sick leave should they experience a significant health issue.

Testifying in favor of the bill were Rep. Jerry Lunn (R-Overland Park), Dave Trabert of the Kansas Policy Institute, and the Kansas Chamber of Commerce. There were numerous opponents.

Perhaps realizing the potential negative impacts of the bill – unintended or not – Chairman Mark Hutton (R-Wichita) announced at the end of meeting that he would not be working the bill this session and instead would ask for an interim study of the issue.


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