Gov. Sam Brownback says he passed this year on proposing some tax cuts he'd like to pursue to concentrate on income tax reductions aimed at boosting Kansas' economy by helping small firms and start-ups.
Democrats have criticized the income tax cuts as favoring wealthy business owners as they look to make the November general election a referendum on the conservative Republican's policies.
Brownback told The Associated Press this week that he focused on a relatively narrow set of income tax cuts because of their potential to spur economic activity. He said helping small businesses is important because most Kansas residents work for firms with 10 or fewer employees and the state needs to form more new companies.
“We said, `All right, you've got a lot of options here.’ We've got a high-tax state,” Brownback said. “We said income taxes, because that's where you get growth. And then we took a narrow slice within that because of your key economic growth being small businesses.”
He could have pursued other measures. For example, Brownback, a U.S. senator before his election as governor, said he wants to tackle what fellow conservatives often call “the marriage penalty,” in which two-income couples in some systems, including the federal government's, pay more in taxes if they file jointly than they would as two single people. Brownback said he wants to send a message that marriage is important to forming healthy families.
“The problem with it is, it's not a major economic-driver tax cut,” Brownback said. “I'd like to see property taxes go down, but you can't see the growth associated with that, that you can if you cut income taxes.”
The new tax law will reduce individual income tax rates next year, merging the state's three tax brackets into two and dropping the top rate to 4.9 percent from 6.45 percent. The law also exempts the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes.
Overall, taxpayers are expected to save $231 million during the current fiscal year and $803 million for the fiscal year beginning in July 2013, with the annual figure growing to $934 million after six years.
Critics have warned that the cuts will create a permanent budget crisis, and legislative researchers have projected that the state will face cumulative budget shortfalls approaching $2.5 billion over the next six years. Brownback and his allies claim the cuts will lead to prosperity.
This week, Democrats intensified their public criticism of the tax cuts as unfair in shifting more of the burden to poor and working-class families.
Critics said during a Statehouse news conference that Kansas traditionally has used a progressive income tax – requiring the wealthy to pay a higher percentage of their incomes – to offset the potential unfairness of sales and property taxes, which eat up proportionately more of low-income families' earnings. Brownback and other conservative Republicans have said they would like to eliminate income taxes.
“If you want a balanced system, why would you get rid of the one tax that helps you balance it out?” said Kansas Democratic Party Chairwoman Joan Wagnon, a former state revenue secretary.
Martin Dickinson, a University of Kansas law professor who specializes in tax issues, also rejected the notion that the tax break for business owners is targeted at small firms. He noted there's no limit on how much income would be exempt and said it applies to owners of a whole class of enterprises, whether a business is “really going to invigorate the economy or not.”
“You could have a very large private business which might be owned by a small number of people,” said Dickinson, a registered Democrat who has taught at the university for 45 years. “All of a sudden, you're tax-free.”
Brownback acknowledged the latter issue as a legitimate point. He noted that he was working with legislators on a compromise to phase in the income tax cuts over six years. But moderate Republicans' resistance to cutting income taxes led conservatives to push through a more aggressive plan – which Brownback now has embraced.
He said supporters of income tax cuts faced the possibility of the state “doing nothing and staying on the same track.”
“Or we can get to a different track,” he said. “It's better to get to a different track.”