Even with better-than-projected tax collections, Kansans are not expected to see tax cuts under a new law that buys down rates as more taxes flow into the state.
Legislative researchers have notified lawmakers that the revenues generated for the fiscal year ending June 30 aren’t enough to lower taxes for 2026 even though they beat estimates by about $248 million.
Assuming inflation for June comes in at where it’s been trending the past three months, combined individual, corporate and financial institution taxes would need to reach about $6.125 billion to be at the threshold needed to cut taxes.
The actual amount for fiscal year 2025 was about $6.038 billion, which was roughly $87 million short of triggering a rate reduction, researchers told lawmakers.
However, researchers said if revenues continue to roll in at the same pace as recent months, the state could see a tax cut sooner than expected.
Researchers estimated that the rate reduction threshold for fiscal year 2026 – using the consensus estimate for inflation – would be about $6.3 billion and about $6.45 billion for fiscal year 2027.
Meeting that threshold to cut taxes would require income tax revenue growth of 4.34% next year or about 3.4% annually over the next two years.
Last session, the Legislature approved a bill gradually cutting individual income taxes to 4% when revenues for individual, corporate and financial institutions exceed fiscal year 2024 levels plus inflation.
Democratic Gov. Laura Kelly vetoed the bill, warning that the state was backtracking into an era of dark fiscal times that the state struggled through in the aftermath of the tax cuts enacted under former Gov. Sam Brownback.
“Make no mistake, should this bill become law, it will put the state back on the path toward the failed Brownback tax experiment: the four-day school weeks, the budget cuts, and the crumbling roads and bridges that came with it,” Kelly said at the time.
Supporters of the bill called it a “sensible” approach to tax cuts by returning money to the taxpayers when revenues come in higher than expected. They said it was a way to control the growth of government.
Under the law, individual income tax rates would be reduced first followed by the tax rates for corporations, which now pay a 3.5% rate for income taxes plus a 3% surcharge on income over $50,000.
The corporate rates would gradually be reduced until the combined normal tax and the surcharge reach 4%.
Tax rates for banks also would be cut until they reach the combined normal tax and surtax rate of 2.6%.
The law keeps taxes from being lowered if the state’s rainy-day fund, which totals more than $1.8 billion currently, dips below 15% of state general fund tax receipts.
The law requires the budget director – in consultation with the director of Legislative Research – to determine yearly whether state general fund income tax receipts for the preceding year exceed the 2024 amount, as adjusted for inflation.
The law requires the determination to be made by Aug. 15 of each year, beginning in 2025.
The new revenue numbers for the fiscal year ending June 30 were warmly received by House Speaker Dan Hawkins, who believed they validated the Legislature’s decision to cut taxes during the 2024 legislative session.
However, the governor reiterated her warning that the state faces difficult budget days ahead, noting that the state is now projected to be $375 million in the red by fiscal 2029.
“Even with current revenues exceeding the forecast, the budget created by the state legislature still has us spending $300 to $700 million more than we receive each year for the foreseeable future, jeopardizing the long-term fiscal health of the state, which I have prioritized as governor.
“Keeping Kansas on the path of fiscal stability will require discipline in the coming years to prevent a return to four-day school weeks, crumbling roads and bridges, and a depleted rainy day fund.”
