Gov. Laura Kelly on Friday signed a bill into law that will cut taxes by about $1.2 billion over the next three years that was just passed in a single-day special session this week.
While the bill was generally lauded as a successful compromise between Republican leaders in the Legislature and the Democratic governor, there was still hunger for more tax cuts.
The bill the governor signed into law moves the state to a two-tiered rate.
It cuts income taxes, eliminates income tax on Social Security and offers some property tax relief, although not as much as many wanted. It also provides an expanded tax credit for child and dependent care.
“Not enough was done on property taxes,” House Speaker Dan Hawkins said shortly after the bill was passed by the Legislature on Tuesday.
Hawkins said property tax reductions were lessened in the tax bill in an effort to meet the governor’s demands that it not cost more than about $425 million a year.
A bill that the governor vetoed would have increased the exemption on the statewide property tax for schools from about $44,000 to $100,000.
It also would have reduced the statewide property tax rate for schools to 19.5 mills from 20 mills.
The tax bill signed into law increases the property tax exemption to $75,000 and leaves in place the 20 mill tax rate.
Republican state Rep. Adam Smith said he plans to revisit property taxes next year, starting with an effort to increase the statewide property tax exemption and reducing the statewide tax rate for public education.
“That helps everybody, homeowners, business owners, ag producers,” Smith said.
“We’re just going to come back and try to get that done early before the budget process is really in full swing,” he said.
Senate President Ty Masterson said there were limits on what the state could do in property taxes, noting any cut in the 20-mill rate would have to be replenished by sales and income taxes in the general fund.
“Anything we do there is to some degree just a tax transfer,” he said.
“It’s property tax relief for people. It’s not total tax relief because you’re having to bring it from sales or income.
“What you’re hearing is there is a lot of interest in property tax relief moving forward, but that wasn’t something we could do during this one day special session.
The Senate has already passed a constitutional amendment that would cap property value increases in Kansas, but it failed to advance in the House this year.
The governor, too, expressed disappointment in not getting more done on property taxes. She blamed that on the Legislature’s insistence on moving to a dual tiered rate.
“The movement from a three-tiered to a two-tiered income tax structure limits the amount of property tax relief that can be provided to Kansans,” Kelly said last week after reaching an agreement with Republican leadership on a tax bill.
The House voted 121-2 to pass the bill, hours after the Senate voted 34-4 for legislation that Republican leaders negotiated with Kelly.
The governor vetoed three tax bills during the regular session out of concern they put the state in fiscal peril.
The impasse with the Legislature prompted her to call Tuesday’s special session to primarily address tax cuts, although lawmakers also approved incentives to bring the Chiefs and Royals to Kansas. The governor signed that bill on Friday as well.
The tax bill would provide about $1.23 billion in tax cuts over three years and move the state from three tax brackets to two.
The bill is about $230 million less expensive than a bill Kelly vetoed because she didn’t think it was fiscally sustainable for the state budget in the out years.
The new tax bill plus three other tax bills enacted into law this year would leave the state with an ending balance of $360 million by 2028 and a rainy day fund of about $1.9 billion, according to the governor’s budget office.
The tax bill that the governor vetoed would have left the state about $488 million in the red by 2028 and a rainy-day fund of about $1.9 billion by 2028, according to the governor’s budget office.
Kelly had pushed the Legislature to move toward a tax plan that would be sustainable for the state budget in the future, something she has advocated for since her election in the aftermath of tax cuts enacted during former Gov. Sam Brownback’s administration.
Kelly had vetoed three tax plans during the last regular legislative session, including one that would have moved the state to a single tax rate and two others that would have moved the state to two tax rates.
She had argued that those tax plans would have put the state’s fiscal future at risk, although Republicans said the state was holding billions of dollars in reserve.
The new overall tax bill moves the state to a two-tiered tax system with an upper tax bracket of 5.58% and a lower bracket of 5.2%.
The state now has three tax brackets of 5.7%, 5.25% and 3.1%.
For married individuals filing jointly, taxable income of up to $46,000 will now be taxed at 5.2%, and taxable income at $46,001 and above will be taxed at 5.58%
For all other filers, taxable income up to $23,000 will be taxed at 5.2%, and taxable income of $23,001 and above will be taxed at 5.58%.
The new bill increases in the personal tax exemption for single filers to $9,160 from the current level of $2,250 person.
For joint filers, the exemption increases to $18,320. The exemption will now be $2,320 for dependents.
The bill also increases the standard deduction to $3,605 from $3,500 for single filers, to $8,240 from $8,000 for married couples filing jointly and to $6,180 from $6,000 for head of households.
It also expands the state’s child and dependent care tax credit to 50% of the federal allowance.
State law previous capped the credit at 25% of the federal credit, which provides a maximum of $2,100 for out-of-pocket expenses for child care.
A proposal to eliminate the state sales tax on food in July was not included. It is set to expire in January.
