The Kansas House on Friday rejected a bill to raise state sales taxes by more than $270 million as part of a plan to fill a $400 million budget hole.
Lawmakers overwhelmingly rejected the bill by voice vote after two hours of debate. The legislation would have raised the state sales tax rate from 6.15 percent to 6.85 percent. It would have dropped the rate on food bought at grocery stores to 5.9 percent.
The bill also would have eliminated most itemized deductions Kansans can claim on their state income tax returns and reduced others for an overall increase of $97 million. This would have been paired with a drop in income tax rates from 2.7 percent to 2.55 percent.
It would have brought in a total of $363 million in extra revenue, which would not be enough to fill the shortfall of more than $400 million the state faces.
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House leaders did not seek votes in support of the bill, a GOP staffer said.
Rep. Marc Rhoades, a Newton Republican, contended his GOP colleagues wanted the bill to “die a big, fiery death.”
Rhoades, who stepped down as appropriations chair last year after feuding with House leaders, repeatedly questioned whether the Appropriations Committee put in the needed effort to find spending cuts to avoid a tax increase.
After the debate, House Speaker Ray Merrick of Stilwell issued a statement saying, “This is the process at work. Our job is to find a proposal that will gain support from 63 members, and that takes time, deliberation and consensus building. We are going to find a solution, and solutions to difficult problems don’t come easily.”
Rhoades said the only tax increase he could support would be a tax on consumption, such as the sales tax included in the bill. He accused House leaders of favoring another plan, which would eliminate an income tax exemption for business owners.
The bill did not touch the tax exemption for business owners that was created in 2012.
Yet Rep. Bill Sutton, a Gardner Republican, offered an amendment in the first few minutes of the debate to place business owners back on the income tax rolls and raise $134 million. That proposal was also defeated by a wide margin on a voice vote.
The Kansas Chamber of Commerce has pressured lawmakers to oppose a rollback of the business exemption, which enables more than 330,000 business owners to pay no income tax. The group has quietly backed the sales tax increase as a preferred alternative.
“If there’s any silver lining today, it showed lack of support for the tax of small businesses out of the House,” said Eric Stafford, the chamber’s lobbyist.
The chamber attacked Democrats and moderate Republicans for supporting a temporary sales tax increase in 2010 as a way to plug a budget hole.
“What’s changed is in 2010 they increased taxes to spend more money,” Stafford argued when asked about the reversal. “They were looking at increasing taxes before they were looking for cuts. We got tax cuts in 2012 on all Kansans and I think what the House folks are looking at now is to further reduce income taxes in exchange for the sales tax.”
Democrats, who have long criticized the business exemption, did not support the amendment. Rep. Brandon Whipple, a Wichita Democrat, said this was because the underlying bill still raises sales tax too much, which Democrats view as regressive.
Rep. Marvin Kleeb, an Overland Park Republican and the House taxation chair, opposed the amendment and blamed the bill’s defeat on the 6.85 percent sales tax rate being too high to win votes. Kleeb’s committee will return to its task of crafting a plan Monday.
He said a tough political fight remains.
“There’s a lot of frustration and there’s a lot of emotions right now because our caucus does not raise taxes easily,” Kleeb said.
Gov. Sam Brownback has backed consumption taxes to fill the budget hole. Asked if the House vote was a rebuke of that philosophy, Brownback was unfazed.
“This takes a lot to figure these out,” the Republican governor said. “It’s like a combination lock with 14 numbers and you’ve got to get all of them right.”
Rep. Melissa Rooker, a moderate Republican from Fairway, said an overhaul of the state’s tax structure in 2012 set up this year’s stalemate among lawmakers.
“What they’re doing right now is fishing,” she said.
Had both the defeated bill and a separate proposal to raise fees on insurance providers passed, the state would have been left with only a $16 million ending balance in 2016 — leaving little room for error if Medicaid costs rose unexpectedly or the state missed revenue estimates.
Rep. Kasha Kelley, an Arkansas City Republican, said the 2012 tax cuts and business exemption were spurring job growth the media refuse to report.
Kelley attended a hearing last month where analysts from the nonpartisan Legislative Research Department and Department of Revenue said no hard data support the idea that the business exemption was spurring job growth.
Data from the U.S. Bureau of Labor Statistics also shows that the state has grown jobs at about the same rate as it had before the tax plan went into effect. Kelley defended her claims when asked about them afterward.
“We have not gone backward in an economy that is incredibly challenging, and that has to count for something,” Kelley said. “We might have some seeds starting to sprout here. … We’re doing much better than we would have under previous tax-and-spend policies.”
She also said her bigger complaint was that it’s been “broadly written that the 2012 tax plan created this hole. That is some portion of revenue lost, but you have to cut spending commensurately with a plan like that.”
Vote on Uber likely next week
The Kansas Legislature is expected to vote next week on a regulatory measure that ride-hailing company Uber says would allow it to stay in the state.
The House was expected to vote on the bill Friday, but the text of the legislation was not ready.
Uber announced in early May that it had ceased operations in Kansas after the Legislature overrode the governor’s veto on regulations the company opposed.
Under the new measure, Uber and other ride-hailing companies could do private background checks on their subcontracted drivers. They could face lawsuits from the attorney general if drivers were found to be operating with a criminal background.
Republican Rep. Scott Schwab of Olathe said the bill also would fill gaps in insurance coverage for drivers.
The Associated Press