With little discussion, a Senate panel voted Tuesday to send a slightly altered version of Gov. Sam Brownback’s tax-cutting proposal to the full Senate for a vote.
The plan retains the real estate property tax deduction Brownback had proposed eliminating that gives roughly 372,000 Kansans an average break of $125.
But it's still likely to face serious opposition because it continues a temporary sales tax hike and eliminates the home mortgage interest deduction that saves the average Kansan claiming the deduction $300 a year.
The altered plan would mean the state still would increase its collection of tax dollars and still would face projected budget deficits in coming years. But Senate Majority Leader Terry Bruce, R-Hutchinson, said spending cuts and growth caused by tax cuts will help the state balance its budget and improve the economy.
The Senate will likely debate the tax plan next week, he said.
Bruce suggested the tax cuts may be closer to a proposal Brownback pitched at the start of last year's legislative session, which cut tax rates and eliminated a batch of tax credits and deductions.
"There are so many working parts and components that it's easy to go on these intellectual odysseys and get lost in the weeds," Bruce said. "But eventually you come full circle and find a way out — being the simple thing, which is close to the governor's original proposal."
Ultimately, Bruce said, a tax cut package will likely be worked out later in the legislative session through grueling negotiations between a few members of the House and Senate — a process that frustrated lawmakers last year.
"There's not enough whiskey in Ireland for me to be on that conference committee," he joked.
Alghouth retaining the real estate tax deduction makes the plan more palatable to some lawmakers, it still results in the state collecting more tax dollars than it would have under the drastic tax cuts Brownback signed into law last year.
Under the new plan, which limits budget problems created by last year's cuts, the state would collect nearly $950 million more over the next three years before the state starts collecting less in 2017.
Over five years, the plan equates to a $377 million tax increase — although that figure ignores the impact of major tax cuts approved last year.
"This now represents the largest tax increase in history," said Senate Minority Leader Anthony Hensley, D-Topeka. "If anybody votes for this, it's a tax increase, pure and simple."
Hensley said he expects lawmakers to propose eliminating other tax credits and deductions to make it more palatable.
"I think you're going to have a pretty contentious debate over this whole bill," he said.
Brownback’s plan starts by lowering the state’s lowest tax bracket from 3 percent to 2.5 percent in 2014 and 2015 before dropping it to 1.9 percent in 2016. The top rate would drop from 4.9 percent to 3.5 percent in 2017. In following years, his plan sends any growth in state revenue beyond 4 percent to pay for more income tax rate reductions.
Eventually, Brownback projects the plan will lead to the elimination of income taxes in Kansas.
His plan mostly retains existing state services by extending a six-tenths of a cent sales tax that would have gone away this summer, generating $262 million, and by cutting mortgage interest deductions.
Tax cuts approved last year dropped the state’s top two rates from 6.25 percent and 6.45 percent to 3.9 percent. It dropped the lower bracket from 3.5 percent to 3 percent, and it eliminated non-wage income taxes for about 191,000 small businesses and farms.
Luke Bell, a lobbyist with the Kansas Association or Realtors, said keeping the property tax deduction helps. But he said his organization will continue to fight to keep the mortgage interest deduction.
"The debate is not over," he said.