A new, less costly tax-cutting measure emerged in the Kansas Legislature on Wednesday as lawmakers tried to rescue the state from another plan that critics said would wreak financial havoc.
Negotiators from the House and Senate agreed to a plan that would be about $2.6 billion less expensive to the state than the one sent to Republican Gov. Sam Brownback last week.
The new plan reduces Kansas income, property and sales taxes, but at a much slower rate than the massive tax plan that is awaiting the governor’s signature.
It gradually lowers the state’s highest tax rates to 4.9 percent during the next six years and reduces the lowest tax rate to 3 percent in 2013. The highest rates of 6.45 percent and 6.25 percent would drop to 5.5 percent in 2013.
The new plan also keeps deductions for interest on home mortgages and charitable contributions. However, it slices a tax credit for the working poor by about 16 percent.
The proposal allows the state sales tax to drop by six-tenths of a cent next year and sends $180 million over four years back to local governments to reduce property taxes.
It also phases in an initiative to eliminate taxes on non-wage business income for limited liability companies, sole proprietorships and the like. The plan would not tax the first $100,000 of income for the first four years and would eliminate taxes by 2018.
Kansas lawmakers could vote on the new plan as early as today.
Brownback, who made tax reform a cornerstone of this legislative session, endorsed the latest proposal.
Legislators “have developed a compromise that gets Kansas on the path to a pro-growth tax policy that will grow the economy and create jobs. Both chambers should approve the compromise bill and send it to me,” Brownback said.
The larger tax cuts were approved by the Senate in March after the bill was loaded up to make it so expensive that few lawmakers thought it would pass.
But when senators appeared to balk at more modest tax cuts last week, the House called their bluff and passed the big tax-cut bill anyway and sent it to the governor.
Since then, legislators have been scrambling to find a way to cut taxes, but not to the extent that it would leave gaping holes in the state budget.
The bill sent to the governor was expected to create a $270 million deficit as early as 2014, and the deficit would grow to a little more than $2 billion by 2017.
The latest plan is projected to leave the state in the black during the next six years, with reserves ranging from $717 million next year to more than $500 million in 2015.
While Brownback signaled he would sign the bigger tax bill, he encouraged lawmakers to find other options. However, Brownback on Wednesday still promised to sign the more sizeable tax cut if the House and the Senate don’t follow through on the latest compromise.
“We cannot afford to stay on the same high tax path of the past that saw our children and grandchildren leave Kansas for better economic opportunities elsewhere,” Brownback said.
Leading lawmakers were optimistic about the fate of the latest proposal, although the Senate leadership still needed to be consulted on the compromise.
“What we need to do is somehow with some miracle convince enough people on the Senate side to vote for this,” said Sen. Les Donovan, a Wichita Republican and chairman of the Senate tax committee.
“This is good for everybody in the state of Kansas,” Donovan said. “It gives every taxpayer in the state a tax break right now.”
State Rep. Richard Carlson, chairman of the House tax committee, said some in the House will want bigger tax cuts and some will want less.
“I am hopeful we will be able to put together enough votes to pass it,” said Carlson, a St. Marys Republican. “This is a plan that all reasonable legislators should be able to support.”