Taxes Dominate 1st Week of Veto Session

This afternoon, the House Tax Committee hosted an overview of the budget bills as they are currently proposed by the House Appropriations Committee in order to compare how the multiple tax proposals that have been considered measure up against the spending priorities set up to this point.  Those numbers did not include a House Education funding proposal to address the recent Supreme Court decision citing inadequate state funding for K-12 education, but the committee estimated it could cost an additional $170 million in FY 18 and $350 m in FY 19.  It also did not include a proposal to reduce the planned fund transfers from the Department of Transportation – the Governor’s Budget Amendments recommend transferring all of the available funds from KDOT to balance the budget for the next two years.  Once those numbers were rolled in with the work of the House Appropriations Committee, the target seemed to be around $600 million or more.  There was further discussion of income tax rates, motor fuels tax, tobacco taxes, removing sales tax exemptions from various services, and other strategies.

This is the first time we have seen a tax committee meeting in which those targets are set out before the committee.  It was designed to show committee members what they can – and can’t – accomplish with their current income tax bill.  So far, the House Tax Committee has preferred proposals that focus on multiple income tax tiers and rolling back the LLC exemption, like the bill passed in February that was vetoed by Governor Brownback – but do not appear to raise enough revenue to cover everything discussed today.

Rep. Ken Corbet argued that increasing motor fuels tax and tobacco taxes would simply disadvantage current business owners – especially those who compete along the Missouri border – “it is a double smack against all of those who try to have a business on the border.  If we keep this up, it looks like Kansas making Missouri great again and I think we need to think about that.”

Rep. Tom Burroughs agreed, pointing out that simply rolling back all of the pieces of the 2012 tax changes would resolve the budget hole - rather than piecing together a bunch of new tax increases.  “I think this is the wrong route to take.  If this budget crisis was caused by previous legislatures, then we need to go back and right the ship.  If the 2012 tax plan is a failure, let’s go back and look at the 2012 tax numbers and see where that puts us.”  Corbet is not a fan of revoking the 2012 tax plan.

On another floor of the Capitol, the Senate Taxation Committee was compiling another tax proposal, including a form of flat tax with the lowest income Kansans (under $6300 for single filers and $12600 for married) paying 0% and everyone else paying 4.4%.  The plan would eliminate the current exemptions for LLCs and non-wage income January 1, 2018.  Many of the plans rejected to date have tried to make the tax increases retroactive to January 1, 2017.  The plan would also reduce the sales tax on food from 6.5% to 5.5%  This plan was proposed by first term Senator Larry Alley.

So far this week, the Tax conference committee has rolled out two income tax increase proposals with multiple tax tiers, also revoking the LLC and non-wage income exemptions, along with reinstating a number of the income tax deductions that have been eliminated.  Each time, the scheduled floor debate (Tuesday in the Senate and Wednesday in the House) was cancelled for lack of votes. 

At this point, neither chamber has taken the steps that would be needed to consolidate support for a tax proposal either through a coalition of moderate and conservative Republicans or through a coalition of moderate Republicans and Democrats.  One stumbling block is that many want to see an education funding plan passed before agreeing on a revenue package.  There are those who feel the proposals so far have not raised enough money and those who feel they raise too much.  And there are those who will not vote for any increase, believing that not enough has been done to cut state spending.  Neither the Senate nor the House can claim they have the votes organized for any given plan – and meanwhile, the Governor has already vetoed the tax proposal that was adopted in February that looked similar to this week’s bills.

On Tuesday, legislators were told to plan to work through the weekend.  That remains to be seen.  The veto session appears likely to last beyond the two week target.