The Kansas Legislature approved a bill overnight Thursday that moves the state to a single tax rate coupled with cuts in property taxes and an increase in the standard deduction.
In negotiating a deal with the Senate, the House agreed to a lower flat tax rate than what it first approved, which ultimately cost it support from Democrats.
The House voted 85-38 for a new flat tax rate of 5.15% while agreeing to forego any effort to eliminate the local sales tax on groceries.
The Senate approved the bill 24-13, three votes short of overriding a veto. The bill now goes to the governor.
The Senate passed a flat tax of 4.75%, while the House passed single rate of 5.25% before both sides settled at 5.15% as lawmakers met late into the night Wednesday.
The state sales tax on groceries wouldn’t end until Jan. 1, 2024, not the July 1 date that the House had originally approved.
The House also compromised on a proposal to exempt $80,000 of property value on the state’s 20-mill property tax for schools.
It settled for $60,000, which was less than the $65,000 that was first proposed when the bill came out of the House tax committee.
There were signals Wednesday night that the new package of tax cuts would cost the support of the Democrats who initially agreed to support the bill even though they grimaced at the idea of supporting a flat tax.
Republican state Rep. Adam Smith, chair of the House tax committee, warned that the compromise might hurt chances of overriding an expected veto from Democratic Gov. Laura Kelly, who is cool on the idea of flat tax.
Democratic state Rep. Tom Sawyer, the ranking member on the House tax committee, said the changes made in the conference committee benefited high-end earners.
It was a view echoed by House Minority Leader Vic Miller, who broke with the governor and half the Democratic caucus in voting for the tax bill as it originally came out of the House.
“I thought it was likely to be the best we were going to get, and I think I’m right,” Miller said.
As it emerged from the House, the bill would have the supermajority needed to override any veto from the governor, including support from Democratic Rep. Marvin Robinson.
Robinson on Wednesday just cast a deciding vote in support of a bill banning transgender athletes from competing in interscholastic sports for women and girls.
It might not matter in this case, however, because one Republican who would likely support the bill was out after having a child.
The new bill approved overnight Thursday would:
- Provide a single individual income tax rate of 5.15%, starting in tax year 2024, for all Kansas taxable income in excess of $12,300 for married individuals filing joint returns and $6,150 for all other individuals. Kansas taxable income less than those amounts would not be taxed.
- Eliminate the state sales tax on groceries on Jan. 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.
- Raise the standard deduction for all taxpayers to account for cost-of-living adjustments starting in 2024. It no longer includes an increase in the standard deduction for single filers to $4,000 from $3,500.
- Increase the property tax exemption for the 20-mill levy for public schools from $40,000 of valuation to $60,000 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 would repeal possible future corporate rate decreases resulting from agreements
under the tax incentives deal approved for future mega development projects. - 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. However, the bill also increases that $100,000 cap by $5,000 a year going forward.
- 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%.
The major sticking point in the debate over the tax bill was the flat tax rate.
Senators pushed the House throughout the day on Wednesday to come down from its position on the flat tax rate.
As part of those negotiations, the Senators agreed to give up their position of eliminating all sales taxes – state and local – from groceries.
Local governments vehemently urged lawmakers not to exempt groceries from local sales taxes, saying it would force them into the untenable position of either raising property taxes or cutting services.
Earlier in the week, House and Senate negotiators agreed to move forward with eliminating the local sales tax on food, but it never panned out.
“I never wanted the local piece in there,” Smith, chair of the House tax committee, said in an interview.
Smith agreed to move ahead with the proposal to eliminate the local sales on groceries with the idea of putting it to a vote.
“Not that I was in favor of it, but if we just needed to vote to see where it stood then we would do that,” Smith said. “That never came to fruition.”
As he agreed to the 5.15% tax rate, Smith warned the senators on the conference committee that it could break up the bipartisan coalition in the House that approved the bill with 94 votes.
“If this gets vetoed, we probably will not have enough to override in the House because the 5.25% was a compromise,” he said.
“We had a strong vote, 94-30 on that,” he said. “I hope we don’t lose it.”
Sawyer said he thought it would be hard for Democrats to stick with the 5.15% rate.
He said the tax savings will largely benefit higher-end earners.
He said the 5.25% would cost about $250 million a year compared to the 5.15%, which he said would cost $335 million a year with the upper-income taxpayers benefiting the most.
Sawyer said the new fixed rate upsets the balance of the overall tax package, which also includes increases in the standard deduction based on inflation and increases the property tax exemption for the 20-mill levy for public schools from $40,000 of valuation to $60,000.
“You are really making it a top-heavy tax cut,” Sawyer told the Senate negotiating team. “We tried really hard on the House side to balance stuff.”
“If you want to go to a single rate, if I were you, I would take the 5.25,” he said.
Republican state Sen. Caryn Tyson, chair of the Senate tax committee, blamed Sawyer for advocating for reversing the tax cuts enacted under for Gov. Sam Brownback and raising taxes.
“You’re also one of them that sold the body on the 2017 tax increases and those were the worst tax increases for low-income individuals,” Tyson said.
Sawyer rebutted Tyson’s point, saying most of the 2017 increase was paid for by taxpayers in the upper-income tax bracket, a point the senator disputed.
“I think four straight years of not being able to balance the budget and have to rob Peter to pay Paul hurt people with lower income,” he said.
