The Kansas Legislature on Thursday set aside the governor’s veto of a bill that would gradually move the state to a single income tax rate that the state’s chief executive said would cost the state $1.3 billion a year.
The Senate and House voted to override Democratic Gov. Laura Kelly’s veto of the bill that gradually cuts individual income taxes to 4% when the state generates $5.96 billion dollars that come from income taxes plus inflation.
The legislation also would subsequently cut the tax rates for corporations as well as banks after individual income tax rates are reduced.
The Kansas Senate voted 30-10 to override the governor’s veto of the bill while the House voted 87-37 to override the veto.
When she vetoed the bill Wednesday night, Kelly warned that the state was backtracking into an era of dark fiscal times that the state struggled through in the aftermath of the tax cuts enacted under former Gov. Sam Brownback.
“Make no mistake, should this bill become law, it will put the state back on the path toward the failed Brownback tax experiment: the four-day school weeks, the budget cuts, and the crumbling roads and bridges that came with it,” she said.
She said the income tax cuts in the bill could cost the state up to $1.3 billion annually, adding that the triggers for those cuts will kick in automatically regardless of any other economic factors or policy and budgetary considerations.
“We’ve been down this road before,” Kelly said.
“We can’t afford to go back to failed tax experiments and policies that will stifle economic opportunity for everyday Kansans and thwart efforts to ensure a sustainable water supply essential to our rural communities.”
Kelly has been warning about the budget that the Legislature adopted in which projections show the state’s ending balance dipping more than $400 million into the red by 2028.
Republican state Sen. Caryn Tyson, chair of the Senate tax committee, said she was bewildered why anyone wouldn’t support the tax bill and “stop our government growth.”
Senate President Ty Masterson and House Speaker Dan Hawkins called the bill a “simple concept that lowers the cost of living by delivering responsible income tax relief.
“When tax revenues come in higher than expected, your taxes go down automatically – a sensible way to return tax dollars to Kansans that only Gov. Kelly could oppose.
“It’s clear, her real allegiance is to growing government on your dime. Republicans stand with taxpayers,” they said.
Democratic state Sen. Ethan Corson of Fairway said the bill sidesteps taxpayers’ demands for substantive property tax relief.
“I continue to disagree with the continued focus on the income tax piece of our tax equation,” Corson said.
Further, Corson noted that the bill won’t provide any immediate tax relief because there are triggers in the bill that will have to kick in before there are income tax cuts.
Further, Corson said the bill handcuffs future lawmakers from cutting property taxes in the future.
He said the bill commits excess revenues only to income tax relief, meaning that the state won’t have any money available for property tax relief in the future.
Where is the property tax relief?” Corson asked.
“It’s a double whammy for folks expecting their property tax relief. We’re not going to give it to you this session and we’re not going to be able to give it to you in future sessions.”
The income tax bill calls for using the money in excess of $5.96 billion plus inflation to lower the state’s two personal income tax brackets simultaneously – now 5.58% and 5.2% – to 4% when there would be just one rate.
Individual income tax rates will be reduced first, with both tax rates reduced proportionally until the lower bracket reaches 4%, at which time only upper bracket rates will be reduced until the upper bracket rate reaches the same level.
When the individual rates hit 4%, surtax rate for corporations and the normal tax rates for financial institutions will start decreasing in corresponding amounts.
Those cuts will continue until the combined normal tax and surtax for corporations reaches 4%, and the combined normal tax and surtax for banks reaches 2.6%.
The state’s corporate rate is now 3.5% plus a 3% surcharge on taxable income over $50,000.
The combined normal tax and surtax for trust companies and savings and loan associations will be lowered until reaching 2.62%.
The bill contains a clause that keeps taxes from being lowered if the state’s rainy-day fund, which totals about $1.7 billion currently, dips below 15% of state general fund tax receipts. It’s now at about 18%.
Democratic state Rep. Tom Sawyer of Wichita had cautioned that it would be a “big mistake” for the Legislature to pass the bill.
Sawyer said the bill makes it so much harder for the state to dig out of a recession, drawing on the difficult budget times of the Brownback era.
“Those of us who were here in 2013, 2014, 2015, 2016, 2017, know how hard it is when you’ve got a budget where you work hard just to get to a zero-ending balance,” he said.
“This is a big mistake,” he said. “We don’t need to tie our hands this way.”
Democratic state Rep. Stephanie Sawyer Clayton cautioned that lawmakers might be putting themselves in a position to raise taxes if the bill doesn’t work out.
“You are setting yourselves up for an incredibly difficult and unpleasant vote in the future…to vote to raise taxes,” the Overland Park lawmaker said.
“Voting to raise taxes to balance a budget is not easy,” she said.
Republican state Rep. Adam Smith said there are items built into the legislation that give lawmakers flexibility.
He pointed to the provision that keeps taxes from being lowered if the state’s rainy-day fund dips below 15% of state general fund tax receipts.
“If things are going south and it looks like we’re going to be facing a recession or potential downturns in the economy, we can use some of that…money to shore up the budget,” Smith said.
“If it drops below that 15% balance, that short circuits this entire buy-down,” he said.
“That provision alone provides future legislators some insurance that we aren’t going to get into the same trouble that we might face if we had a hard, fast buy-down schedule going down to the 4%,” he said.
Smith also noted that the revenues have to beat income tax revenues for the tax cuts to kick in. He said the bill still allows for the state to benefit from any increase in sales tax revenues in the future.
