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.