Kansas Gov. Sam Brownback wants your trust.
He’s asking you to give up some of your most cherished tax credits and deductions. In return, he’s promising to lower your income taxes.
It’s a fiscal — if not political — trade-off that’s not the easiest to sell to taxpayers who count on deducting interest on their home mortgages or their contributions to charities.
Getting some heat from home, lawmakers are wrestling with Brownback’s plan to eliminate more than 40 tax deductions and credits for individual taxpayers while simultaneously lowering income tax rates.
Embedded in the tax culture, the deductions and credits used by 400,000 taxpayers aren’t easy to just wipe away.
“There’s so much opposition” to eliminating the exemptions, said Bernie Koch, executive director of the Kansas Economic Progress Council, a group made up of chambers of commerce and businesses.
“Everybody has had their toes stepped on a little bit,” Koch noted. “There’s something for everybody to dislike.”
In trying to develop a flatter and simpler tax system, the Republican governor wants to cut credits for sales taxes on food, credits for adopting kids, credits for preserving historic buildings, credits for low-income workers and credits for making properties accessible for the disabled. The governor also would eliminate deductions for contributions to the state’s college savings plan.
But in defending Brownback’s proposal, Revenue Secretary Nick Jordan said: “The reality is that the existing system, cobbled together over many decades, is full of inequities.”
The governor’s tax plan, he added, “seeks to make the playing field more level for more Kansans and lower everyone’s individual income tax rates.”
Worth about $600 million, those tax credits and deductions are the golden egg that helps pay for the governor’s plan to lower income taxes. However, each of those credits and deductions has its own constituency, which poses political problems for lawmakers as they try to decide the best tax policy.
“It does make it very difficult,” said Derrick Sontag, state director of Americans for Prosperity. “You can point to any number of deductions and appeal to certain parts of the population and say, ‘You don’t want this to go away, do you?’ ”
Last week, Realtors, social services advocates and historic preservationists went before a House committee to fight for their tax credit or deduction of choice.
The Realtors wanted to keep the home mortgage deduction. Social service advocates wanted to keep the earned income tax credit and the food sales tax rebates. Others wanted to keep credits for restoring historic buildings or investing in emerging high-tech businesses.
It puts lawmakers on notice that they need to be careful not to effectively raise taxes when they’re working to do just the opposite.
Meanwhile, the House has been working on its own tax plan. Unlike the governor’s, the House plan keeps most of the current tax deductions and credits in place.
“We have to make certain that we don’t actually cost our people tax money under the guise of lowering taxes. That’s the House’s concern on this,” said House Majority Leader Arlen Siegfreid of Olathe, a Republican.
“How much does reducing the income tax to 4.9 percent actually save a person? It saves us some, but I don’t know for a fact it covers the entire loss of those deductions,” Siegfreid said.
House Speaker Mike O’Neal, a Hutchinson Republican, said keeping the deductions is a matter of honoring what taxpayers have been counting on for years.
“Human nature being the way it is, people have certain expectations,” O’Neal said. “They don’t like change. They want to keep exemptions that they currently have. That’s the environment we’ve tried to work within.”
Part of the governor’s plan calls for reducing the upper-level tax bracket to 4.9 percent for taxpayers earning more than $15,000 individually, and $30,000 for a married couple filing jointly. The lowest tax bracket for taxpayers making less than $15,000 would drop from 3.5 percent to 3 percent.
Jordan, the governor’s point man on the proposal, agreed that the deductions aren’t easy to eliminate because they are so rooted in the tax culture. But Jordan believes there’s confusion about what the governor’s tax plan does for taxpayers.
He emphasized that it does not affect deductions and credits on federal taxes. He said the federal home mortgage deduction is much bigger than the state’s average of $390.
Jordan also noted that eliminating the deductions and credits only affects about one-third of the 1.4 million resident taxpayers who itemize each year. He said the ultimate impact on an individual’s taxes — at least in the short run — will depend on how much they’re deducting.
He acknowledged taxes may go up for some people but pointed out that the governor wants to drive down taxes in the long term as state revenues grow.
“If you’re just taking a standard deduction, you certainly should see a lowering of your income taxes,” Jordan said. “The highest percentage of people will see a decrease.”
Gary Allerheiligen has counseled the state on the tax plan and is chairman of the legislative committee for the Kansas Society of Certified Public Accountants. He told lawmakers last week that not everyone will benefit from the tax plan immediately.
But the Wichita CPA said the impact will be felt in future years as the tax plan spurs more growth that in turn creates more tax revenues that could be used to lower rates.
Still, Rep. Marvin Kleeb said keeping the deductions in the current House plan removes the political resistance that stems from so much uncertainly with the public.
“Strategically, maybe the governor needed to get his tax reform package and his message out several weeks ago,” said Kleeb, an Overland Park Republican who is vice chair of the House tax committee.
Until the House started hearings last week, the positive sides of the governor’s plan were buried in public criticism, he said.
“All we’ve heard from is the opponents and all the people with concerns,” Kleeb said. “The positive side of the governor’s reform package hasn’t been articulated.”