After two years of making wholesale changes in the Kansas income tax code, Republican state officials will sit back in 2014 and see whether the economic growth they envisioned takes hold.
With the help of the GOP-controlled Legislature, Kansas Gov. Sam Brownback pushed through tax cuts for nearly 200,000 businesses and individual income taxpayers during the 2012 and 2013 sessions. His goal was to set the state on a path toward eliminating income taxes over time and attracting new residents and businesses.
“It’s been a weak (national) recovery. But I’m very encouraged by the data that we have right now and I’m encouraged that our revenues to the state have held so strong. Things are working,” Brownback said, noting it was too early to deem the cuts a success but pointing to “nice gains” in the Kansas portion of the Kansas City metropolitan area, southeast Kansas and northwest Kansas.
House Taxation Committee Chairman Richard Carlson said surrounding states have taken notice of Kansas’ changes, but he doesn’t expect legislators to do more when the session starts in Jan. 13.
“I look for the next year to be quiet. I think it’s looking pretty good right now,” the St. Marys Republican said. Brownback is also seeking to be re-elected in 2014.
But if revenues are any indication, legislators are likely to have little extra money next session for budget contingencies – such as increases for public schools or a prison expansion. Kansas will collect $5.86 billion this fiscal year, according to a November fiscal forecast, 7.6 percent less than $6.34 billion collected in the fiscal year that ended June 30. And personal income tax collections are expected to decline 14.7 percent in the current fiscal year.
Although the fiscal forecast also projects $5.92 billion in revenue come the 2014-2015 fiscal year – a 1 percent increase – any surpluses will evaporate and leave a shortfall by the 2018 session, documents from the state’s Legislative Research Department showed.
“It’s going to be a disaster on the state’s budget,” Senate Minority Leader Anthony Hensley, a Topeka Democrat, said of the tax cuts recently.
Whatever happens, the cuts likely will be front and center during Brownback’s bid for a second term.
House Minority Leader Paul Davis, who’s running against Brownback, has been one of the harshest critics of the tax cut. The Lawrence Democrat argues Kansas cannot afford to lose that much money from a main source that quickly and that essential services, such as public education and social services, will bear the brunt of the effects.
“Gov. Brownback promised his tax plan would be a `shot of adrenaline' to the Kansas economy, but adrenaline is something we feel immediately,” Davis said. “The only immediate effect we’re feeling from the Brownback tax plan is a budget crisis.”
Davis said removing income taxes as a source of revenue puts the burden on sales and property taxes, which can disproportionately affect low- and middle-income wage earners.
“Kansans who are out of work can’t afford to wait five years for jobs,” he said.
Carlson said an improving national economy would amplify the effects of Kansas’ tax cuts by creating more opportunity for job growth. And House Speaker Ray Merrick, a Stilwell Republican, senses the state is improving based on new business filings and a November unemployment rate that dropped to 5.1 percent.
“Recovery is a slow process, but there are lots of hopeful signs,” Merrick said. “With that in mind, I’m always interested in examining ways to make our tax structure less burdensome to families and businesses and more conducive to economic growth.”
Democrats also have argued that Kansas has a property tax problem, pointing to the fact that cities, counties and school districts have been forced to raise tax levies to pay for essential services and to pick up the cost of programs that were previously supported by the state.
Carlson understands the concern about property taxes, but said the state has to be wary of stepping in and taking authority away from local governments by placing restrictions on what they can collect.
“I do try to steer clear of that. I think we should let the people decide, but it is a concern statewide,” he said.