The Kansas House approved nearly $1.4 billion in tax cuts over three years that will eliminate the sales tax on food this summer, cut property taxes and increase the standard deduction while reducing taxes for banks and other corporations.
The House voted 94-30 to pass the tax bill, drawing support from a handful Democrats who believe the tax package will benefit all Kansans, especially seniors and those who are less affluent.
The bill moves the state to a single tax rate of 5.25% while exempting income up to $6,150 for individuals and $12,300 for married couples filing jointly.
The bill represents an effort to move the state away from its three tax brackets to a flatter and simpler tax system, something states nationally have been moving toward.
An analysis by the legislative research shows that the tax plan would benefit the lowest and highest earners while the middle class would benefit the least.
The tax plan as approved by the House would:
- Eliminate the state sales tax on groceries on July 1 instead of phasing it out through 2025. Gov. Laura Kelly had called for an immediate phaseout of the food tax. The House plan only applies to the state sales tax. It would not apply to local sales taxes after local government officials implored lawmakers not to cut a vital revenue source.
- Increase the standard deduction for single individual taxpayers to $4,000 from $3,500 in tax year 2023. It also raises the standard deduction for all taxpayers to account for cost-of-living adjustments starting in 2024.
- Increase the property tax exemption for the 20-mill levy for public schools from $40,000 of valuation to $80,000 starting in tax year 2023. The bill provides for the amount to increase in future tax years based on the average percentage change in statewide residential real property for the preceding 10 years.
- Cut corporate income taxes to 3% in 2024, which was part of the bill approved last year authorizing tax incentives for Panasonic and other mega development projects. The bill discontinues possible future tax rate cuts provided in the tax incentives bill starting July 1, 2024.
- End the tax cliff on Social Security taxes. Kansans currently don’t pay taxes on Social Security benefits if they earn $75,000 or less a year in federal adjusted gross income from all sources. But if they earn just $1 more than $75,000, they go over a so-called “cliff” when they are hit with a substantially bigger tax bill. The House bill gradually phases in the tax by increasing the threshold to $100,000. Under the bill, for example, if a taxpayer’s federal adjusted income is halfway to $100,000, only half of the Social Security benefits would be taxed.
- Cut taxes for banks from their overall rate of 4.375% to 3.75% in 2024 and savings and loans from their overall rate of 4.5% to 3.86%.
Republican state Rep. Adam Smith, chair of the House tax committee, said the state has a unique opportunity to provide relief in every major category of taxation.
“Every homeowner will see a reduction in their property tax burden. Every consumer will see a break at the cash register when buying groceries.
“Every income taxpayer will – individuals and businesses – will benefit from changes in our income tax code as this bill adjusts rates, exposes less income to taxation and initiates future growth in the standard deduction with inflation,” he said.
Democrats were split on the bill with the minority leader and the former minority leader parting ways with the rest of their caucus.
“While I would prefer a more progressive income tax, even that piece has been greatly improved from the original bill, increasingly for those with lower incomes,” said Rep. Vic Miller, the top Democrat in the House.
Not all Democrats saw it that way.
“By adopting the flat tax, the House is saying that it will only give hard-working Kansans a tax cut if wealthy Kansans receive their tax cut first,” said Democratic state Rep. Stephanie Clayton of Overland Park.
“Tossing out Kansas’ decades-old progressive income tax is structurally imbalanced and fails to offset the higher effective tax rate middle- and working-class Kansans pay in sales and property taxes,” she said.
Clayton was joined by 22 other House Democrats in her comments.
Democratic state Rep. Jarrod Ousley of Merriam also vote against the bill, saying that the wealthy would benefit the most.
He said almost half the savings in the tax bill would benefit the top 3% of earners, including tax cuts for corporations.
“This is a huge giveaway to wealthy corporations and banks and will destabilize our state’s ability to pay for needed services,” Ousley said.
Last month, the Senate agreed to a bill that called for collapsing three income tax brackets into one where individual Kansas taxpayers would pay 4.75% on their earnings.
It would cost the state general fund about $1.3 billion in revenue over three fiscal years.
It also passed legislation that would eliminate taxes on Social Security and all retirement income at a cost of more than another $1 billion over three years.
