(Updated to include comments from Senate minority leader)
Democratic Gov. Laura Kelly and Republican leaders in the Legislature confirmed Thursday night they have a deal on tax cuts to be considered at a special session next week that would move the state to a two-tiered tax rate.
House Speaker Dan Hawkins and Senate President Ty Masterson and the governor announced the deal in separate statements Thursday night.
The deal was announced hours after the Sunflower State Journal reported the details of the plan in a document it obtained early Thursday afternoon that shows the new plan to be less expensive, although it provides less property tax relief than earlier versions of the bill.
Kelly said the agreement would allow “significant, long overdue tax relief to Kansans while preserving our ability to invest in the state’s future.”
She said the agreement was flawed because it moves the state to a two-tiered income tax structure that limits the amount of property tax relief that can be provided to Kansans.
“However, it does meet the affordability criteria I proposed. Thus, should the Legislature pass this negotiated agreement, I intend to sign it.”
Hawkins and Masterson issued a joint statement.
“For over a year, the Legislature has been laser-focused on easing the burden of inflation by letting taxpayers keep more of their hard-earned money by passing multiple broad and sustainable tax relief plans,” they said in a statement.
“We firmly believe the surpluses belong to the people, not the government. While the governor’s veto pen prevented more substantial income and property tax relief, this agreement is an important first step that lowers taxes today for the people who need it the most,” they said.
“On Tuesday, we will act swiftly to pass this compromise – and look forward to resuming our efforts to pass additional tax relief when we return in January.”
The governor had been at an impasse with Republicans in the Legislature as well as House Democrats over tax cuts throughout the recently completed session.
Kelly had pushed the Legislature to move toward a tax plan that would be sustainable for the state budget in the future, something she has advocated for since her election in the aftermath of tax cuts enacted during former Gov. Sam Brownback’s administration.
Kelly had vetoed three tax plans during the recently completed legislative session, including one that would have moved the state to a single tax rate and two others that would have moved the state to two tax rates.
She had argued that those tax plans would have put the state’s fiscal future at risk, although Republicans said the state was holding billions of dollars in reserve.
The Sunflower State Journal obtained a copy of a document circulated to lawmakers on Thursday that spelled out the details of a new tax plan that is expected to be considered next week when lawmakers convene in a special session.
Multiple sources received a copy of the new plan that was circulated Thursday, although it was not distributed with the statements issued later that night.
There was one caution flag raised about the document as it related to whether the local ad valorem tax reduction fund would be repealed. A top Republican said it would be repealed, although the document indicates otherwise.
The new bill would be an estimated $264 million less over three years than the bill Kelly vetoed last month because she didn’t believe it would be sustainable for the state over the long term.
The new bill would cost roughly $1.23 billion over three years compared to $1.49 billion in the bill that the governor vetoed.
The negotiated agreement does not reflect the cost of all tax cuts.
There are other bills that have been enacted, such as an array of sales tax exemptions, that drive up the overall cost of tax cuts to $1.38 billion over three years.
The Legislature separately enacted sales tax cuts that benefit disabled veterans, telecommunications companies, Exploration Place in Wichita and the Kansas Children’s Discovery Center in Topeka, among others.
The new overall tax bill would still move the state to two-tiered tax system with an upper tax bracket of 5.58% and a lower bracket of 5.2%.
The state now has three tax brackets of 5.7%, 5.25% and 3.1%.
The new bill, according to the document, would keep increases in the 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.
The tax bill Kelly vetoed included those same increases in the personal exemption.
The new bill also would keep increases in the standard deduction that were in the bill the governor vetoed.
Under the agreement, the standard deduction would increase to $3,605 from $3,500 for single filers, to $8,240 from $8,000 for married couples filing jointly and to $6,180 from $6,000 for head of households.
The bill would keep the state’s 20-mill tax levy for public schools in place, although it would increase the residential exemption to $75,000 from about $42,000 currently.
Earlier versions of tax bills called for increasing the exemption to $100,000 and lowering the school tax levy to 19.5 mills.
The new agreement would eliminate the income tax on Social Security benefits.
It also would expand the state’s child and dependent care tax credit to 50% 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.
A proposal to eliminate the state sales tax on food is not included. It is set to expire in January.
A couple sources expressed caution about part of the document, saying that it inaccurately stated that the local ad valorem tax reduction fund would not be repealed.
They said it would be repealed.
The Senate’s top Democrat, Dinah Sykes, said the compromise plan was not what Democrats had fully wanted but in the “spirit of compromise it moves us forward.
“Senate Democrats will continue to fight for more property tax relief and child care relief, things we know our constituents truly want and need,” Sykes said.
