Gov. Sam Brownback declared Thursday in his State of the State address that Kansas would continue its “march to zero” on income taxes.
But the budget and tax plans he unveiled Friday showed it would not be marching so quickly.
He proposed a slowdown in income tax cuts — plus massive tax increases on tobacco and liquor — as part of his plans to fix a budget shortfall projected at $648 million for the next fiscal year.
The Republican governor also wants to speed the elimination of income tax deductions, something that would generate more revenue for the state by collecting more dollars from taxpayers.
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Taxes on a pack of cigarettes would increase by $1.50 per pack, bringing the total state taxes to $2.29 per pack. And taxes on liquor would rise to 12 percent from 8 percent.
Brownback’s plan would allow a very small reduction to rates for the lower income tax bracket in 2016 and then freeze rates until state coffers are restored.
The income tax proposal is similar to one pushed by Brownback’s Democratic opponent, Paul Davis, last fall. Brownback’s campaign had repeatedly attacked that proposal.
Under Brownback’s budget proposal, tax revenue would increase by $211 million for the fiscal year that begins next July. The budget also proposes a combined $615.5 million in budget cuts and transfers from dedicated funds. That would close the budget gap and create a cash surplus.
Liquor, tobacco tax hikes
The tax increases on liquor and cigarettes will have trouble passing, predicted Rep. Pete DeGraaf, a Mulvane Republican and a member of the budget committee. He said lawmakers would consider other options to find the dollars.
Democrats pointed out that consumption taxes disproportionately affect working class people.
“It’s a hit on anybody who smokes. A hit on anybody who drinks. But these kind of consumption taxes always hit lower income people harder,” said Sen. Laura Kelly, a Topeka Democrat, the ranking minority member on the Senate budget committee. “You’d put them in the regressive tax category.”
Revenue Secretary Nick Jordan contended that “income taxes are on people’s productivity and hard work” but with “consumption taxes you at least have freedom to decide how much you’re going to spend and where you’re going to spend.”
“Totally in line with (Brownback’s) overall philosophy since he was first elected,” he added.
The proposed cigarette increase would mean that if a person smokes a pack a day, the state would collect an extra $547.5 per year.
George Stevens, majority owner of Wichita Tobacco and Candy Co., said customers might head to places where taxes on cigarettes are lower. That concern was echoed by Sen. Jeff Melcher, a Leawood Republican who said many residents in his district already buy cigarettes in Missouri. Missouri has the lowest cigarette taxes in the country.
Some consumers don’t have that option, said Nick Gardinier, manager at Davis Liquor in Wichita.
“A lot of our customers walk here,” he said. “A lot of them don’t have cars.”
“It’s wrong,” he said. “They should be getting their money from other sources.”
Brownback’s original tax plan eliminated income taxes for owners of certain businesses, such as limited liability corporations. His new proposal would keep that tax exemption.
But he would soften additional income tax cuts for individuals scheduled for 2016 and delay tax cuts scheduled for 2017 and 2018.
Income tax rates dropped Jan. 1 to 2.7 percent for the lower bracket and 4.6 percent for the upper bracket. The rate for the lower bracket is scheduled to fall to 2.4 percent in 2016 under current law; it would fall to 2.66 percent under Brownback’s new proposal.
The governor also wants 50 percent reductions in existing income tax deductions — including for property taxes and for home mortgage interest — to occur this year instead of in 2017. That would generate an estimated $72.1 million over the next two fiscal years.
His plan would establish a tax reduction fund that would put money toward tax relief if state revenues exceed the previous year by 103 percent. And it would create a budget stabilization fund in the event that revenues miss that mark but reach 102 percent. That money would become a rainy day fund for the state to use in future budget crises.
Brownback’s plan on income taxes differs only slightly from the one put forward by Davis, which would have held rates at 2015 levels until state revenues were restored enough to fund base education aid per pupil at pre-recession levels.
In August, Brownback’s campaign spokesman John Milburn called the Davis plan “appalling.”
“The effect of this so-called economic plan would be to make it harder for struggling Kansans to make ends meet and provide for their families. Kansans should be outraged,” Milburn said in a campaign release.
Kelly, the Topeka Democrat, said Friday that she “appreciated that they used Paul Davis’ solution. … He’s probably laughing.”
Kelly said the administration’s proposal proves that the state has a serious revenue problem rather than just a spending problem, as many Republicans have claimed.
But administration officials aggressively pushed back against the notion that Brownback’s plan was similar to Davis’.
Budget director Shawn Sullivan took to Twitter to dispute the idea. And the Department of Revenue sent out a release lauding the governor’s plan as continuing tax relief for Kansans.
Jordan said Brownback’s plan was “not even close” to the Davis plan.
“It doesn’t pause them. It depends on growth. The bottom rate still goes down next year,” he said.
A married couple making $30,000 a year would save an additional $6.60 a year or 55 cents a month under the softer reduction Brownback now proposes for the next fiscal year.
Some Republican lawmakers were willing to admit the resemblance.
“There were some similarities to what Paul Davis talked about. This is not a literal freeze,” said Sen. Michael O’Donnell, a Wichita Republican and member of the Senate budget committee. “So this is more subtle.”
Sen. Dan Kerschen, a Wichita-area Republican and another member of the committee, said he supported the idea.
“I don’t know whose plan (it is). I like the proposal at the end of the day. It’s a good start. It’s what needed to happen,” Kerschen said.
Dave Trabert, president of the conservative Kansas Policy Institute, said lawmakers should still look for more savings in the budget before making any changes to the income tax plan.
“We don’t need to do the tinkering on the tax plan that’s being proposed,” Trabert said.
Anthony Williams and Dion Lefler of The Wichita Eagle contributed to this report.
Highways, broadcasting cut in Kansas budget
The governor’s budget would divert $385 million from state highway projects over three years. Transportation officials say some future projects will at least be delayed.
Brownback released a plan Friday to divert $151 million from highway projects to general government programs in the current budget. That’s $55 million more than the $96 million he proposed in December.
He proposed diverting an additional $115 million during the 2016 fiscal year beginning in July and $115 million again during fiscal 2017.
The state Department of Transportation said projects already scheduled under a 10-year, $8 billion highway program will not be affected. The program started in 2010.
But department spokesman Steve Swartz said $297 million in projects will at least be delayed. The projects haven’t been identified or scheduled.
Brownback proposed cutting public broadcasting funds nearly 17 percent from current levels.
Legislators last year included $600,000 in the current budget for grants to public broadcasting stations. Brownback wants to cut the figure to $588,000.
He also is proposing to reduce the funding again to $500,000 for the 2016 fiscal year beginning July 1. It would remain at $500,000 for fiscal year 2017.
The state provided $3.8 million as recently as 2008.
When Brownback took office in January 2011, he sought unsuccessfully to eliminate all state public broadcasting funds and have stations make up the gap with private donations.
| The Associated Press