(Developing: Will be updated)
A $1.56 billion tax plan was narrowly defeated in the Kansas Senate on Monday afternoon as Democrats stood by the governor’s opposition to the measure because she said it was too expensive and would put the state’s fiscal health at risk.
The Senate voted 26-14 to override Gov. Laura Kelly’s veto of the tax bill, coming up just one vote short of the two-thirds majority needed to override the veto.
It was a stark difference from last week when a bipartisan group of lawmakers in the House voted 104-15 to override the governor’s veto of the bill that would have moved the state to a dual-rate income tax structure.
The vote in the Senate leaves the Legislature about a day to see if it can still patch together a tax plan before lawmakers adjourn for the year Tuesday.
Kelly has vowed to call lawmakers into a special session to consider tax cuts if they can’t pass a tax plan, which could potentially delay them from getting their campaigns started as the state moves into the heart of the election cycle.
The governor’s chief of staff reiterated that promise to House Democrats on Friday morning as he tried to coax them into not overriding the governor on the tax bill.
“For anyone who’s worried they are leaving without a tax cut, you’re not,” Will Lawrence told House Democrats.
“The governor will call the Legislature back into a special session. She’s made that commitment,” he said. “She made it on Jan. 26. That hasn’t been changed.”
Lawrence said the governor didn’t include that threat in her veto message of the tax bill because she wasn’t trying to be too antagonistic.
“That commitment has not changed and will not change,” he said.
The Legislature has wrestled with the governor over settling the matter, unable to find a bill that alleviates her concerns that would it disrupt the budget.
The Legislature considered five tax plans this session, including two that would have moved the state to a single-rate structure, two plans that would have moved the state to two tax brackets and a fifth that would have retained three brackets.
The governor has urged fiscal restraint, saying the proposed tax cuts would put the budget at risk in the out years.
As she has done on the campaign trail, Kelly evoked the budget difficulties experienced by the state following the tax cuts enacted under former Gov. Sam Brownback.
The governor pitched an alternative proposal that was similar to the plan she vetoed, leading Republicans to question whether it was distinctly different.
“I appreciate that the Kansas Senate has prioritized our state’s future fiscal stability by upholding my veto,” Kelly said in a statement.
“As I’ve said before, Kansans need meaningful sales, property, and income tax relief, but we must ensure any tax relief is responsible and sustainable.
“Now, I urge the Legislature to consider the alternative tax cuts package I proposed last week to ensure that Kansans get the relief they desperately need.”
The governor’s administration produced a profile showing that the Legislature’s plan would put the state in the red by nearly $400 million in 2029 albeit with a rainy-day fund of about $2 billion.
However, Republicans say recent revenue forecasts show that the state is projected to have a roughly $3.6 billion reserve in fiscal 2025, including a $1.7 billion rainy-day fund.
Kelly administration officials have said $1 billion of those reserves are one-time Medicaid matching funds that the state received from the federal government during the pandemic.
Supporters of the tax plan say only tens of millions of dollars separate the Legislature’s plan from one that was advocated by the governor.
They questioned how that narrow of a gap could make the difference between an economically robust state and financial ruin.
“These tax cuts are absolutely sustainable,” said Republican state Sen. Caryn Tyson, chair of the Senate tax committee.
Tyson called on lawmakers to finish their work on a tax bill Monday and put the issue behind them without needing to return for a special session.
“I’ve heard today that we could come back for a special session. How many of you in the room want to come back for a special session?” she asked.
“I don’t think your constituents would appreciate it either at $84,600 a day that we’re called back,” Tyson said.
“We’re going to waste taxpayers’ money,” she said. “We can finish this here and now.”
Tyson said the governor used scare tactics to keep lawmakers from approving the tax plan.
She pointed to dire predictions that Kelly made in 2021 when lawmakers overrode her on a tax plan that was estimated to cost $300 million over three years.
“She said it was going to bankrupt the state…take us back to the days when we couldn’t make a budget,” Tyson said of the governor’s veto of the tax bill in 2021.
“We all know that we’re doing just fine,” Tyson said.
“We overrode that veto, and the budget is fine.”
Democratic state Sen. Ethan Corson of Fairway questioned whether the state was trying to amass a rainy-day fund with the idea of cutting taxes.
Corson said the budget profiles don’t account for increasing spending on needs such as special education in the future or the possibility of an economic downturn.
“Are we going to be raising taxes in the teeth of a recession so we can fully fund our infrastructure, our schools, our basic services?” Corson said.
“What’s the long-term plan? What’s the vision here?” he asked.
He said voters in his northeast Johnson County district don’t want to see the state return to budget problems that followed the Brownback tax cuts.
“It was asked, ‘How would you going to explain this to your constituents?'” he said.
“For me it’s simple. My constituents are really worried about going back to where we were under Gov. Brownback,” Corson said.
Republican state Sen. Renee Erickson of Wichita said excuses were put up as reasons to vote against the tax plan.
“I have sat here and listened to every excuse under the sun,” Erickson said.
“I don’t like things in this tax bill, either. I wanted a single rate. That’s what’s best for Kansans,” she said.
“I have constituents back home suffering because of inflation, suffering because of this economy. They need relief,” Erickson said.
“This is a compromise tax bill,” she said. “I am willing to compromise. It’s sad the other side isn’t.”
The bill that failed to pass in the Senate lowered income tax rates, increases the personal exemption, eliminates state income taxes on Social Security, accelerates elimination of the sales tax on food and increases the standard deduction.
The plan would have moved the state to a dual-tiered structure with income tax rates of 5.55% and 5.15%. Those rates are now set at 5.7% and 5.25%. The lowest bracket would be eliminated.
The income threshold for the 5.15% tax bracket would have set earnings up to $23,000 for single filers and $46,000 for joint filers. The threshold for the lowest bracket in Kansas is now $15,000 for single filers and $30,000 for joint filers.
The new plan would have eliminated the income tax on Social Security benefits and accelerated the elimination of the food sales tax to July 1.
It also would have increased the residential exemption on the state’s 20-mill property tax rate from about $42,000 to $100,000. It also would have lowered the property tax rate to 19.5 mills.
The plan would have increased the state’s personal tax exemption for single filers to $9,160 from the current level of $2,250 person. For joint filers, the exemption would have increased to $18,320. The exemption would have been $2,320 for dependents.
Fiscal analysts said while it may appear on paper that the new plan would have increased taxes, significant increases in the personal tax exemption ensure there would have been a cut.
The plan also called for a 3% increase in the standard deduction. It would have increased the standard deduction to $3,605 for single filers, $8,240 married joint filers and $6,180 for head of household.
