(Will be updated)
The Kansas Senate on Wednesday afternoon narrowly failed to overturn Gov. Laura Kelly’s veto of a nearly $1.4 billion tax bill that would have moved the state to a single tax rate coupled with cuts in property taxes and an increase in the standard deduction.
The Senate voted 26-14 for the bill, falling one vote short of the 27 needed to reverse the governor’s veto of a bill that she said would return the state to an era of budget troubles that were blamed on tax cuts enacted under Gov. Sam Brownback.
State Sen. Dennis Pyle, a former Republican now an independent who ran for governor last year, joined with Democrats in opposing the bill.
It was not an unusual place for Pyle, who has a reputation for running counter to the Republican establishment, including his run for governor that was seen as undercutting Attorney General Derek Schmidt in his campaign against Kelly.
The vote derailed a national wave in which an increasing number of states have moved to a so-called flat tax. In the last two years, five states have moved from a graduated income tax rate to a flat individual income tax.
However, the tax plan couldn’t escape the shadow of Brownback, whom Kelly evoked in rallying against the tax legislation.
“I refuse to take us back to an era of chronically underfunded schools, four-day school weeks, crumbling roads and bridges and crippling debt,” Kelly said earlier in the week when announcing her veto of the tax bill.
Among other things, the bill would have:
- Provided a single individual income tax rate of 5.15%, starting in tax year 2024, for all Kansas taxable income in excess of $12,300 for married individuals filing joint returns and $6,150 for all other individuals. Kansas taxable income less than those amounts would not be taxed.
- Eliminated the state sales tax on groceries on Jan. 1 instead of phasing it out through 2025. Kelly had called for an immediate phaseout of the food tax. The House plan only applied to the state sales tax. It would not have applied to local sales taxes after local government officials implored lawmakers not to cut a vital revenue source.
- Raised the standard deduction for all taxpayers to account for cost-of-living adjustments starting in 2024. It no longer included an increase in the standard deduction for single filers to $4,000 from $3,500.
- Increased the property tax exemption for the 20-mill levy for public schools from $40,000 of valuation to $60,000 starting in tax year 2023. The bill provided 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.
- Cut the corporate income taxes to 3% in 2024, which was part of the bill approved last year authorizing tax incentives for Panasonic and other mega development projects.
- Ended 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 phased in the tax by increasing the threshold to $100,000.
Republican state Sen. Virgil Peck of Havana said the tax bill “has a tax cut for every single Kansan.”
“It cuts property taxes for homeowners no matter their income level,” Peck said.
“It cuts the Social Security tax for our senior citizens, something we’ve been working on for quite a while,” he said.
“It provides for automatic increases in the exemption on income tax for working families. It accelerates the elimination of the food sales tax for all Kansans.”
“I cannot idly sit by and not do everything I can to help get (the tax bill) across the finish line,” he said. “It’s good for Kansas and Kansas taxpayers.”
Republican leaders said Tuesday that there was no fall-back plan if the Legislature didn’t override the governor’s veto of legislation.
With the session in its last days, GOP leaders believe there’s little time to craft a new plan to replace the plan that Kelly vetoed.
“There is no backup plan. That was the compromise,” Senate President Ty Masterson said Tuesday.
Kelly said she vetoed the tax bill because it included a flat tax rate of 5.15% that she said would benefit the wealthy more than the less affluent.
An analysis by the Kansas Department of Revenue showed that the lowest earners – those making under $25,000 – would save about $50 a year in taxes.
The wealthiest earners – those making more than $250,000 a year – would see their taxes cut by nearly $3,100 a year.
She said the state’s current three-bracket tax structure is more progressive where the more you make the more you will pay in taxes.
“There’s no way for a flat tax to generate enough revenue and still provide any tax relief,” Kelly said.
“You would have to jack the flat tax up so high that essentially almost no Kansans would get a tax cut.”
The state’s budget director did an analysis showing that the state could be running a deficit of $626 million by fiscal year 2027 with the proposed tax cuts under certain circumstances, including approval of a pay raise for state employees this year.
The deficit grows to more than $700 million if a separate tax bill, which includes a hodge-podge of relatively small items such as sales tax break for telecommunications companies, is passed.
Leading Republicans said the vote would effectively end debate on taxes this year, although the governor has proposed a $450 tax rebate for single tax filed and a $900 rebate for married filers. The Legislature was cool to the idea of the rebate.
“If that bill doesn’t make it, it’s done,” House Speaker Dan Hawkins said Tueday. “It’s that or it’s gone.”
“At this time, there is no going back. If we don’t override it, it’s just done until next year.”
Kelly had proposed an $820 million tax rebate for Kansas taxpayers, including $450 for single filers and $900 for married couples.
It’s not unprecedented for the Legislature to pass a bill in a day, although lawmakers greeted the idea of a tax rebate coolly.
“The governor’s veto and gimmicky proposal reveals a stark truth,” Masterson said.
“She believes that taxpayer money belongs to the government, for politicians to dole out in one-time ‘payments’ rather than recognizing the money we collect belongs to the people and that we should simply let them keep it,” Masterson said.
Hawkins said the House sought to write a tax plan that was sustainable, which included one that got support from Democrats with a flat tax of 5.25%.
The House agreed to take that tax down to 5.15% at the behest of the Senate, which originally passed a flat tax of 4.75%.
While some Democrats supported a variation of the flat tax at 5.25%, Hawkins was skeptical whether they would have ultimately supported the tax plan in the end.
Elizabeth Patton, state Director for Americans for Prosperity-Kansas, said she wasn’t surprised by the Republican leadership’s willingness to dump the tax bill if the override isn’t successful.
“That doesn’t shock me at all,” Patton said. “The work has been done to get a really reasonable tax bill. So, this is it.”
