A Republican plan to lower income taxes by drawing money from state highway funds cleared a key committee in the Kansas House on Monday.
The House Taxation Committee approved a bill that would also eliminate refundable tax credits available to the poor, which could save the state tens of millions of dollars.
However, the plan preserves other tax deductions for home mortgage interest and charitable contributions.
The plan, proposed by House Republican leadership, would use new revenue flowing into the state to lower the tax rates for all three of the state’s tax brackets.
Any revenue growth higher than 2 percent would go toward reducing income tax rates even further.
The House would phase in a plan to exempt limited liability companies and sole proprietorships from income taxes.
The first $100,000 of their non-wage income would be exempt from income taxes in 2013 to 2015. The exemption would increase to $250,000 in 2016 and 2017. A year later, all non-wage income would be exempt from taxes.
The House would let part of a 1-cent sales tax increase passed two years ago expire on schedule next year. Six-tenths of a penny is scheduled to expire July 1, 2013.
However, the House plan has been criticized because it uses $350 million from a sales tax designated for roads to buy down income taxes. The House plan promises to repay that money over time.
But state highway officials have indicated that some road projects might have to be delayed under the House Republicans’ tax plan.
Several cities have joined with contractors and engineering groups to protest the state taking money from the transportation plan, which includes fixing the congested interchange at Kansas 10, Interstate 35 and Interstate 435.
The House plan potentially became more controversial when the committee amended the plan to make refundable tax credits worth less by making them nonrefundable.
A refundable tax credit can reduce your tax liability below zero because it’s possible to receive a refund even when you don’t owe taxes. A nonrefundable tax credit can only be used to reduce the amount of taxes you owe to zero.
“For the state to be writing checks back to people for more than they pay in, we clearly can’t afford it,” said Rep. Caryn Tyson, a Parker Republican.
The Republican plan rivals one proposed by Gov. Sam Brownback, who wanted to reduce incomes taxes partly by eliminating many deductions and credits, including those for home mortgage interest and charitable contributions. He also wanted to eliminate the earned income tax credit.
The governor also proposed keeping the extra penny of sales tax, which raised concerns among some conservative House Republicans who campaigned on repealing the tax two years ago. It was unclear Monday whether the governor’s plan would get a vote in the committee.