Gov. Laura Kelly on Wednesday vetoed a $1.56 billion tax bill that would move the state to a two-tier structure, but she offered a new last-minute alternative for the Legislature to consider when it returns this week.
Kelly’s latest tax proposal, which resembles a plan she introduced at the start of the legislative session, would cost the state general fund about $1.3 billion in the first three years, according to an analysis run by the budget office.
The plan passed by Legislature would cost the general fund about $1.6 billion for three years, although Republicans and conservatives believe that a new stable fiscal outlook issued last week shows the state can afford the tax plan.
The overall revenue estimate was increased $45.9 million for fiscal years 2024 and 2025 combined, leaving the state with an ending balance of about $2.7 billion in ’24 and nearly $2 billion in ’25.
The tax battle is culminating with the Legislature expected to wrap up its work next Tuesday with a total budget surplus of about $3.6 billion in fiscal 2025, including a rainy-day fund of about $1.7 billion.
“Kansans need meaningful sales, property, and income tax relief. However, we must ensure that the plan is affordable for the long term,” Kelly said in a statement.
“We must be mindful of the fiscal mistakes of the previous administration and ensure we can provide tax relief while continuing the progress we have made as a state.”
Kelly’s latest tax plan would:
- Retain three tax brackets at 5.65%, 5.2% and 3%. The current brackets are set at 5.7%, 5.25% and 3.1%
- Increase the standard deduction for single Kansans from $3,500 to $5,000; for those with head of household filing status from $6,000 to $7,500; and for those who are married filing jointly from $8,000 to $10,000.
- Exempt the first $125,000 in property taxes from the 20-mill property tax homeowners pay for schools. The lost revenue would be made up from the general fund.
- Eliminate state income taxes on Social Security income.
- Expand the state’s child and dependent care tax credit to 100% of the federal allowance. State law currently caps the credit at 25% of the federal credit, which provides a maximum of $2,100 for out-of-pocket expenses for child care.
- Accelerate eliminate of the state sales tax on food to July 1.
A profile run by the governor’s budget office shows that the state would have an ending balance of about $526 million by 2028 and rainy-day fund of about $1.9 billion.
The budget office had run a similar profile of the tax bill with its own set of assumptions passed by the Legislature.
The profile showed the state going in the red by nearly $400 million by 2029 albeit with a $1.9 billion rainy-day fund.
The governor’s new plan leaves some doubt to what extent House Democrats might rebel against Kelly after they unanimously passed a plan that the governor vetoed.
Vic Miller, the top Democrat in the House, said he had wished the governor hadn’t vetoed the tax bill that passed on the last day of the regular session.
Miller said the governor is taking the risk that she can still get a better tax plan, something he’s not ready to tell his caucus that they should take the chance.
“If we override her, we have a bill that everybody likes. I personally think it’s a good bill,” Miller said in an interview.
“I’ve looked at her alternative. I can actually make some arguments that it’s better,” he said.
“But there’s no assurance, at this moment whatsoever, that the Republicans are going to embrace it. Quite frankly, looking at some of its components, I can’t imagine they will.”
Miller allowed for the possibility he could vote to sustain the veto, but also said he could vote to override as well.
Miller said the question confronting Democrats is whether they go for the bill that is near passage or place a bet that they can get a better plan advocated by the governor.
“It’s a Catch-22,” Miller said. “We have a bird in the hand that’s not so bad. Do we want to risk two in the bush and give that up?”
Democratic state Rep. Rui Xu of Westwood said he is still supportive of the bill that the governor vetoed.
“I think the plan that the House already passed is more progressive and I think it’s better on working folks and it’s better for a majority of Kansans,” Xu said.
“I think the governor’s plan is good. I think it’s fine,” Xu said.
“But I don’t think this is going to be what Hawkins and Masterson allow to come across the House floor,” he said. “That’s the problem.”
Republicans were quick to denounce the governor’s veto of the tax bill that passed unanimously in the House and 24-9 in the Senate, although it’s not clear how they view the governor’s latest proposal.
House Speaker Dan Hawkins accused the governor of shifting positions on taxes, although his office declined to comment on the governor’s new plan.
“We all saw unanimous support for this tax relief bill in the House. We all saw the bipartisan majority support for this bill in the Senate. And we’ve all seen the revenue estimates that say this plan is sustainable,” Hawkins said in a statement.
“One by one we’ve overcome Governor Kelly’s objections to delivering your money back to you in the form of property, income, Social Security, and sales tax relief. And every time, the governor moves the goalposts and vetoes the bill,” he said.
“At this point, there are two more things that deep down we all know to be true – Kansans need and deserve tax relief and Gov. Kelly isn’t serious when she says she wants to provide it,” he said.
Senate President Ty Masterson echoed that view.
“Kansans are rightfully frustrated by the governor’s decision to yet again veto sustainable property, income and sales tax relief primarily geared to help those with lower incomes,” Masterson said in a statement.
Masterson said that Kelly has rejected 75 tax cuts during her tenure as governor, “preferring to keep record surpluses in government coffers rather than returning it to the people.”
Questions persist whether the override can succeed in the Senate where it came up three votes short of the two-thirds majority needed for an override.
There were five Republicans that night who were absent and not voting. And unlike the House, most of the Democrats opposed the bill.
“I know that I support the governor’s plan and have always appreciated the governor’s fiscal conservatism,” Senate Minority Leader Dinah Sykes said.
“I am confident my colleagues in the Senate Democratic caucus do as well.”
The veto wasn’t unexpected since Kelly has placed a premium on protecting the state’s fiscal health even at a time when the state is projected to have more than $3 billion in reserve.
“I have said repeatedly that I will do everything in my power to prevent our state from the fiscal mismanagement of the previous administration,” Kelly said.
“Since becoming governor, my administration has been laser-focused on getting us back on track, so we don’t go back to the days of four-day school weeks, crumbling roads and bridges, and crippling debt.
“This bill is too expensive and risks reversing the progress we’ve made. ”
Alan Cobb, president and CEO of the Kansas Chamber, called the veto “silly.”
“It is clear Gov. Kelly has no interest in real tax relief for Kansans or in putting the state in a more competitive position for future investment,” Cobb said.
“It is fiscally irresponsible of Gov. Kelly not to support and allow this sensible and affordable tax relief to become law,” he said in a statement.
Similar to the governor’s proposal, the Legislature’s plan lowers income tax rates, eliminates state income taxes on Social Security, accelerates elimination of the sales tax on food and increases the standard deduction. It also increases the personal exemption.
The plan would move 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 change to 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 still eliminates the income tax on Social Security benefits and accelerates the elimination of the food sales tax to July 1.
It also increases the residential exemption on the state’s 20-mill property tax rate from about $42,000 to $100,000. It lowers the property tax rate to 19.5 mills.
The Legislature’s plan increases 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 increase to $18,320. The exemption would be $2,320 for dependents.
Democratic state Rep. Jason Probst of Hutchinson said he needs to evaluate both plans to better understand how they would affect the lower- to middle-class taxpayers.
He said he tends to still support the plan that was vetoed by the governor, partly because of the generous increase in the personal exemption that will benefit every filer.
“For once in my life, I saw a tax plan that seemed to benefit most of the taxpayers in Kansas,” Probst said.
“I am willing to look at it and see if it still accomplishes the goal of saving what I would view as people on the lower end and in the middle brackets save money,” he said.
“Once I spend some time with that, I’ll make a decision about what I end up wanting to do,” Probst said.
Probst said he believes the Legislature is on track to pass tax cuts this year.
“I think Kansans are going to get tax savings this year, and I think it’s just a discussion about who gets what,” he said.
Probst said that the governor, the House and the Senate seem committed to the idea of cutting taxes this year.
“It seems like everybody is oriented around the same goal,” he said, “we just have to work out the details on how we do that.
“I guess what we’re doing right on the vetoes and the votes, that’s all part of the process.”
