Pushing lawmakers to close a budget shortfall by boosting sales and cigarette taxes, Gov. Sam Brownback on Saturday proposed eliminating income taxes for 388,000 poor residents and raising taxes for business owners.
Brownback’s plan would raise $428 million during the fiscal year beginning July 1, a little more than what’s needed to close the budget gap.
Most of the new revenue would come from increasing the sales tax to 6.65 percent from 6.15 percent and the cigarette tax by 50 cents a pack, to $1.29 from 79 cents. The governor previously proposed increasing tobacco and alcohol taxes and said he was open to increasing the sales tax.
Disagreements among Republicans on tax issues have made the GOP-dominated Legislature’s annual session one of the longest in state history, at 100 days as of Saturday. The Republican governor offered his new plan after he had said earlier in the week that he would let legislators draft their own solutions.
“I thought it was time to put something out,” Brownback said at a news conference.
The state’s budget problems arose after the GOP-dominated Legislature slashed personal income taxes in 2012 and 2013 at Brownback’s urging as an economic stimulus. Republican lawmakers are considering increases in business, sales, cigarette and even gasoline taxes, but they remain sharply divided.
Republicans in both chambers reviewed the governor’s plan Saturday, and their discussions were expected to continue Sunday. But it wasn’t clear whether either chamber would debate and vote upon tax issues.
House Speaker Ray Merrick, a Stilwell Republican, said that “with some tweaking” the governor’s plan “could probably work.”
“The sales tax might be a little hefty, but it’s within shooting distance,” Merrick said.
Brownback’s new proposal to end income taxes for the lowest-income Kansans is an idea legislators haven’t considered. His plan would eliminate income taxes for individuals earning up to $10,250 a year, single parents earning up to $17,250 a year and couples earning up to $24,500 a year.
It would save those taxpayers $19 million during the next fiscal year. Some legislators questioned whether the increase in the sales tax would be greater for those taxpayers than the income tax break.
Lawmakers have debated backtracking on a 2012 policy that allowed 281,000 business owners and 53,000 farmers to avoid income taxes on their profits. Brownback’s proposal would be a small move in that direction but less than legislators had considered.
A proposal before the House would raise $101 million during the next fiscal year by retaxing business profits, and a plan the Senate rejected would have raised $82 million. Brownback’s business tax plan would raise just $24 million.
Kansas cut personal income tax rates in 2012 and 2013, and the exemption for business owners and farmers is expected to save them up to $220 million during the next fiscal year if lawmakers preserve it.
Critics argue the exemption is unfair because business owners escape income taxes while employees’ wages remain taxed.
Democratic Sen. Tom Holland of Baldwin City immediately dismissed the governor’s business tax proposal as a “fig leaf.” Republican Rep. Mark Hutton of Wichita said Brownback’s proposal is structured so businesses easily could use accounting maneuvers to still avoid taxes.
“That’s a bogus deal,” he said.
But officials with the Kansas Chamber of Commerce and the National Federation of Independent Business said their groups would find the governor’s proposal acceptable after they lobbied hard to preserve it.
“This is better than most of the plans we’re seeing out there,” chamber president and CEO Mike O’Neal said.
Lawmakers’ proposals for increasing the cigarette tax have hovered around the 50-cent-per-pack increase Brownback is proposing.
GOP legislators have debated proposals to increase the sales tax to as much as 7.15 percent, and GOP senators floated a proposal Saturday to raise it to 6.95 percent. Some don’t think there’s enough support to go above 6.5 percent.
Only eight states have rates above 6.5 percent. Republican Sen. Greg Smith of Overland Park said he wants to eliminate some of the dozens of exemptions to the tax instead of increasing the rate, a position other GOP senators have taken.