(Updated to add possibility of bill being sent back to committee and include comments from the governor, Senate president, House tax chair, Senate minority leader, House minority leader. It corrects that standard deduction is not tied to inflation)
House and Senate tax negotiators on Wednesday reluctantly agreed to a new $1.4 billion tax plan that cuts income taxes for higher-earning taxpayers, eliminates state taxes on Social Security and includes an expanded tax credit for child care.
With time running out in the session and fewer options for tax relief becoming available, a House-Senate conference committee agreed to a new package of tax cuts that retains three tax brackets and moves the Legislature closer to the governor’s position.
It’s very different from the single-rate plan that Republicans pushed at the start of the session but couldn’t overcome the governor’s veto.
Committee members – Republicans and Democrats – were generally lukewarm about the new proposal, saying either it didn’t do go deep enough for all taxpayers or did too much for taxpayers in the upper bracket.
There was a lot of talk in the halls of the Capitol that the bill could potentially be sent back to committee with so many lawmakers unhappy with the result.
Gov. Laura Kelly’s office did not immediately comment on the new plan but issued a statement late Wednesday.
She said the proposal did not represent the perfect tax plan but she would sign the legislation. She said it “provides substantial tax relief for all Kansans.” The plan, she said, “would keep Kansas on a fiscally sustainable path forward.”
The bill will go to the Senate first and if it passes there, it could run into a roadblock.
Republican state Rep. Stephen Owens of Hesston said he plans to ask the House to send the bill back to the conference committee.
“I am very concerned that we are not appropriately addressing income tax relief in the agreed upon package,” Owens said.
Owens supported a recent House plan that would have moved the state to a dual tax rate, although he was an advocate for a single rate.
The House bill eliminated the lowest income tax rate.
“I believe we need to do more for the bottom tier that pays income tax,” he said.
“I think the right blend between a three-tier system and a single-rate system is elimination of that lower rate, which is what the House did.”
In short, the new bill, which costs about $1.4 billion over three years, does the following:
- Retains the state’s three-tiered tax bracket but doesn’t change the income thresholds. It cuts the upper bracket to 5.5% from 5.7%. This provision, along with increases in the standard deduction, would cost about $590 million over three years and is the most expensive part of the plan.
- Eliminates income taxes on Social Security. It would cost $400 million over three years.
- Increases the standard deduction for single filers to $5,000 from $3,500 for single filers. It increases the standard deduction to $7,500 for head of household from $6,000 for head of household. It also raises the deduction to $10,000 from $8,000 for married couples filing jointly. The deduction would not increase with inflation.
- Increases the residential exemption on property taxes for schools from about $42,000 to $100,000. It lowers the statewide property tax rate to 19.5 mills from 20 mills. This measure costs about $309 million over three years and would be replenished by the state general fund.
- Expands 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. This would cost roughly $36 million over three years.
- Accelerates the elimination of the state sales tax on food to this July 1. It was not scheduled to lapse until next year. This will cost about $63.5 million this year.
- Repeals the local ad valorem tax reduction fund, which hasn’t been bankrolled in 20 years but was used to send money to local governments to lower property taxes.
The new plan emerged after the House unanimously passed a tax package last week that would have moved the state to two income tax brackets but received a tepid response from Gov. Laura Kelly’s office, Senate Democrats and Senate President Ty Masterson.
The governor had expressed concern about the cost of the House plan and wanted any final tax package to include a child care tax credit.
The governor had adamantly opposed any effort by the Legislature to move to a single-rate structure, a proposal that she has vetoed twice.
Realizing that they couldn’t muster enough votes to override a veto of the single tax rate, House Republicans put together a new tax plan that was somewhat similar to the proposal that came out of a conference committee on Wednesday.
The Republican plan that passed unanimously last week would have moved the state to two tax brackets and would have cut the rates in each one.
It also would have eliminated the income tax on Social Security and accelerated elimination of the sales tax on food.
It also would have increased the standard deduction and tied increases for an additional two years to the rate of inflation.
However, the new compromise plan is about $171 million less expensive over three years than the one the House passed last week.
Democratic state Rep. Tom Sawyer, ranking member on the House tax committee, said he couldn’t support the new plan because it didn’t do enough for lower-income earners.
“The relief is all at the top,” Sawyer said.
That view was shared by Vic Miller, the top Democrat in the House.
“It looks like the same old, same old, taking care of the rich, leave the middle class behind,” he said
“We’ll take a closer look at it.”
Senate President Ty Masterson said he supported the new tax plan, although he had been a staunch advocate of a single tax rate.
“It’s a big win for us,” Masterson said.
“Taking tax off Social Security was a Republican thing. She commandeered it. So, we’re getting that. Property tax going down. Income tax going down.
“How is that a not a win for me?”
Republican state Sen. Caryn Tyson, chair of the Senate tax committee, didn’t think the new tax plan provided enough tax cuts.
“It’s less benefit for the taxpayers,” said Tyson, an advocate for the single tax rate.
“I’m just trying to protect the taxpayers and giveback as much as we possibly can,” she said.
“If this is the best legislation to move forward with, I’m all for it,” she said.
“I don’t think we’re going to see a single rate this year, so I’m trying to get the best bill possible,” she said.
Republican state Rep. Adam Smith, chair of the House tax committee, said the bill agreed to by the conference committee was not where he wanted to be.
“When we walk away and everybody’s equally frustrated, you probably reached the best compromise.”
Dinah Sykes, the Senate’s top Democrat, had opposed the latest House tax plan because it was too costly. She also thought it was a “glide path” to a flat tax.
Sykes embraced the new plan adopted by the conference committee.
“The tax agreement announced today is a compromise that includes key pieces of the governor’s proposal,” Sykes said.
“While this isn’t the perfect plan, this is what compromise looks like,” she said.
“This has been a difficult and divisive legislative session, but I’m glad Democrats and Republicans could come together to cut taxes for all Kansans,” she said,
