An eager and enthusiastic Gov. Sam Brownback laid out an ambitious agenda for the Kansas Legislature on Wednesday night that includes a plan to cut the income tax rate for roughly 1.6 million Kansans.
However, nearly two-dozen tax deductions, including the one for home mortgage interest, would go away.
Saying he’s “bullish” on Kansas, the Republican governor outlined plans to develop a new school financing proposal, cure an ailing pension system for state employees and corral rising Medicaid costs.
“That’s a lot to accomplish,” Brownback told state lawmakers from the House chamber. “Can we get it done? Of course we can.”
For the first time, Brownback revealed his plans to make over the state tax code in an attempt to make it “fairer, flatter and simpler.”
Described as “close to revenue neutral,” the governor’s proposal calls for reducing the income tax rate for households and eliminating income taxes on about 191,000 small businesses.
The plan, which got mixed reviews from lawmakers, would:
Cut the income tax rate to 3 percent for individual income under $15,000, or $30,000 for married taxpayers filing jointly. The tax rate is now 3.5 percent.
• Lower the income tax rate to 4.9 percent on income higher than $15,000, or above $30,000 for married couples filing jointly.
The rate is currently 6.25 percent for income between $15,000 and $30,000 and 6.45 percent on income higher than $30,000
• Double the standard deduction to $9,000 for head-of-household filers.
• Eliminate many separate deductions, including tax breaks for home mortgages, earned income, day care, adoption, historic preservation and environmental compliance.
Eliminate individual state income taxes on non-wage business income like limited liability companies and the like.
• Preserve the entire one-cent state sales tax enacted two years ago. It was supposed to shrink by .6 of a cent in July 2013.
The governor’s tax strategy is intended to promote long-term economic growth and stem the loss of jobs and people to other states. The governor has argued for many months that Kansas tax rates aren’t competitive with other states in the region and across the country.
Brownback has reported that Kansas has lost 15,600 people since 2004 with an income of about $1.1 billion.
The governor blames the tax code in which the top marginal personal income rate of 6.45 percent ranked 26th nationally.
“When it comes to taxes, we have some of the highest in the region,” Brownback said.
Brownback says his plan is intended to level the playing field with states that have more attractive tax rates.
“I firmly believe these reforms will set the stage for strong economic growth in Kansas and will put more money into the pockets of Kansas families and businesses,” Brownback said.
Brownback asked the Legislature to limit future growth in state spending to 2 percent a year and commit all extra money to reducing state taxes.
“This will get us ever closer to the pro-growth states with no state income taxes, which are among the country’s strongest economic performers,” Brownback said.
The governor’s tax plan drew a variety of reactions from conservative and moderate Republicans as well as Democrats.
Democrats have “real concerns” about Brownback’s tax plan and how he wants to pay for it, said Senate Minority Leader Anthony Hensley of Topeka.
Hensley specifically targeted the governor’s proposal to eliminate the home mortgage interest deduction, which is worth about $390 a year to the average family.
“Faced with the challenges created by a struggling economy and housing market, we believe now is not the time to increase the tax burden on Kansas homeowners,” Hensley said.
Hensley and other Democrats warned about taxes shifting from income to other sources like property taxes.
“There is always that proverbial saying that the devil is in the details,” Hensley said. “Truly, the devil is in the details of how he plans to pay for this income tax cut.”
Other were effusive in their praise of the governor’s plan and thought it would at least have a good chance of passing muster in the House.
“I am very excited about this,” said Republican House Majority Leader Arlen Siegfreid of Olathe. “The tax plan is integral part of taking us from a high-tax, high-debt state to a low-tax state and will provide great growth for us.”
Siegfreid said cutting taxes for small business would spur growth.
“We’ve known for many years that most of job growth comes from small businesses and we’re very, very, happy we will be able to provide them with the tax structure that will allow them to grow.”
Sen. John Vratil, a Leawood Republican, had differing views. He likes the idea that the governor wants to move to a flatter, simpler tax code. But he sounded a warning about capping increases in state spending.
“It costs this state more than an additional 2 percent per year just to function,” Vratil said. “If all of our revenue over a 2 percent increase is dedicated to tax reduction, we’ll have budget crisis every year.”
Marvin Kleeb is an Overland Park Republican who sits on the House tax committee. He thought the plan would have a good chance to pass the House.
But Kleeb added that the Legislature will need to study how the plan would affect government services and then look at what will help foster growth in Kansas.
“I believe there is a lot there to consider very seriously,” Kleeb said.