House committee passes out new tax bill after trimming cost

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A bill emerged from a House committee Thursday evening that calls for moving the state to single tax bracket while eliminating the sales tax on groceries this year and eliminating the tax cliff for Social Security.

With hardly a dissenting voice, the House tax committee passed out a bill that would have a price tag of nearly $1.37 billion for all state funds from 2024 to 2026. The effect on the state general fund is estimated at almost $1.19 billion over the same time.

Trying to work within a budget that would accommodate other outstanding tax bills and also fit within the state’s spending plan, the House tax committee worked to pare down an existing bill that would have cost all state funds about $2.1 billion over three years.

The tax package is sprinkled with some items Democrats – as well as Gov. Laura Kelly – support such as ending the state sales tax on groceries this year and raising the exemption for property taxes paid on the state’s 20-mill school levy.

The tax plan as it came out of committee would:

  • Set a state single state tax rate at 5.25% while exempting income up to $6,150 for individuals and $12,300 for married couples filing jointly. The original flat rate would have been set at 4.95% in the bill before it was amended.
  • Eliminate the state sales tax on groceries on July 1 instead of phasing it out through 2025. 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 $65,000 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.
  • 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.

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.

The House committee removed the contents of the Senate tax bill and replaced it with its own version of a tax bill, setting up a conference committee where the two sides will hash out the differences in their tax plans

However, the Senate passed another bill, which died in the House, that would have eliminated all sales taxes – state and local – for groceries starting in 2024.

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.

The House tax committee chair, Republican state Rep. Adam Smith, won praise from some Democrats in how he deliberately developed the tax package, partly by working with the chair of the House budget committee to find a workable plan.

And as the House committee voted on amendments, fiscal analysts plugged the numbers into a spread sheet shown on a big screen so committee members would see in real time the bottom line cost of the tax package.

Democratic state Rep. Stephanie Clayton of Overland Park said she wouldn’t vote for a flat tax but appreciated how the tax committee went about its work.

“I still cannot vote for a flat tax, but I like the way the House tax committee did things,” Clayton said.

“It was was one of the most responsible crafting of a tax bill that I’ve ever seen. I’ve never been happier with process.”

Democratic state Rep. Tom Sawyer of Wichita said he was “good with this bill,” although he would prefer more income tax brackets.

He said the bill takes the food sales tax to zero by July, ties increases in the standard deduction to inflation and increases the property tax exemption for the state’s 20-mill property tax.

Last year, House Democrats rolled out their tax agenda that included increasing the property tax exemption for the 20-mill levy for public schools from $40,000 to $65,000.

Kansas Action for Children, which monitors state fiscal policy, still had reservations about the bill.

“While we appreciate the House tax committee’s efforts to cut down the cost of the bill, we remain concerned about spending a half a billion dollars going into a potential recession,” Emily Fetsch, director of fiscal policy for KAC.

“And we continue to be against flat tax or single rate tax proposals,” Fetsch said.

The top lobbyist for the Kansas Chamber of Commerce, one of the leading supporters of a flat tax, praised the committee’s work.

“We appreciate the work today by the House tax committee to continue to work toward a comprehensive tax plan that benefits all Kansans,” Eric Stafford said.