A little more than two weeks after it passed a single tax rate with a supermajority, the Kansas Senate agreed to a compromise plan that cuts state taxes on income, property and Social Security while expanding a tax credit for child care.
The Senate voted 38-1 to approve a new tax plan that costs $1.4 billion over three years but is within financial constraints set by the governor so that taxpayer services would not be jeopardized because of a revenue reduction.
The bill retains the state’s current three-rate structure while trimming the highest bracket.
“This truly is a compromise plan in every sense of the word,” Senate President Ty Masterson said. “It’s just time. It’s been time.”
The bill now goes to the House, where there’s expected to be an effort to send it to committee because of bipartisan dissatisfaction over how deep the tax cuts go and whether they benefit low-income earners.
“While this isn’t my perfect plan, this is what compromise looks like,” said Senate Minority Leader Dinah Sykes.
“This proposal benefits all Kansans and it includes ideas from both Republicans and Democrats,” Sykes said.
“This has been a difficult and divisive legislative session, but I think with this plan we can show our constituents that we can come together and do the right thing and cut taxes for all Kansans,” she said.
Democratic state Rep. Tom Holland of Baldwin City, who is not running for reelection, was the only senator to vote against the tax bill.
Holland said the bill “wildly misses the mark” in addressing residential property taxes. He said the bill would only mean a $141 tax reduction on a $250,000 home.
“You are seeing residential property owners getting squeezed and squeezed and squeezed and squeezed,” Holland said.
“This doesn’t get rid of the squeezing,” he said. “This in my mind is a half of a Band-Aid where the sore is still festering.
“The residential property tax wound, most of that sore is still gaping and it is weeping. It is not a pretty sight.”
With time running out in the session and fewer options for tax relief becoming available, a House-Senate conference committee on Wednesday 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 that couldn’t overcome the governor’s veto. The Senate, for the second time, had just passed a flat tax with a supermajority in mid-March.
Democratic Gov. Laura Kelly has said she would sign the bill and met with House Democrats on Thursday morning to encourage them to support the bill.
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. It increases the standard deduction to $7,500 for head of household from $6,000. 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.
