Sam Brownback says he's willing to talk about tax policy
Kansas lawmakers have run out of time. Hard choices are here.
Thursday, the state Senate will take up measures designed to close a $320 million budget shortfall over the next five months. Senators will also discuss a package of tax increases and adjustments meant to cover a two-year, $1 billion budget hole in 2018 and 2019.
To their credit, most lawmakers seem to agree that one-time maneuvers — taking money from highways, postponing pension contributions, leaning on federal money or cashing in a tobacco settlement — have been, or would be, a disaster. They’re demanding a structural fix so they aren’t forced to debate tax and spending issues over and over, like some Groundhog Day nightmare.
A structural fix will hurt. You can swish salt water, use a toothpick, take an aspirin, get a root canal, but eventually a dentist has to pull a rotten tooth.
The proposals hitting the Senate floor Thursday aren’t the final answer. They’re merely opening bids in what’s expected to be a difficult, time-consuming effort to find the right combination of spending cuts and tax hikes that will finally get Kansas out of the mud.
That combination must be found. With this in mind, here’s what lawmakers should consider.
The rest of this year
With less than five months left in this fiscal year, lawmakers must find $320 million. Raising taxes appears out of the question: Even a sales tax hike could not be put in place in time to generate enough money to cover the deficit.
Democrats and Gov. Sam Brownback have suggested sweeping money from the state’s pooled investment fund, then paying it back over seven years. That would be more can-kicking.
That leaves emergency spending cuts, including a proposed $128 million reduction in spending for K-12 schools. If that reduction or something like it is the only option, legislators should commit to replacing those funds during the following two years, over and above whatever additional K-12 school spending is required, either through court order or a new funding formula.
Kansas should borrow money from its schools, not cut their funding. Schools would have no choice but to scramble this spring, but they would at least be able to count on being made whole once the current crisis has passed.
The following two years
The state needs to find $1.1 billion over the following two years to pay the schools back and cover coming deficits.
Some fixes are easy. The Legislature should end the so-called LLC loophole, which exempts state taxes on income for most small business owners, immediately. That would generate $500 million over two years.
The Kansas Center for Economic Growth has proposed an increase in the gasoline tax, an idea that has merit. Gas prices are at historic lows, and fuel efficiency is improving. A six-cent increase would raise $150 million over two years.
Of course, fuel taxes hurt the poor. Legislators should commit to a reduction in the Kansas sales tax on food if they raise the gasoline tax. Cigarette and liquor taxes might also be raised if the food sales tax is cut.
At that point, Topeka must consider income tax reform. Adding back a third bracket for high-income earners — over $75,000, say — would provide the state additional cash. Legislators may also want to consider a temporary income tax surcharge on six-figure earners as well.
Finally, the Legislature should look at tax exemptions, credits, loopholes and economic development incentives for additional money. That study should begin now, with a package of changes offered in 2018.
As bad as the situation is in Kansas, it’s actually worse than it appears. The current shortfalls have come with a recovering economy. If the United States goes into recession during the next two years, revenue will plummet still further, making a bad situation worse.
Conservatives will propose reductions in spending. They should be heard. Government should be as efficient as possible.
But Kansas cannot simply cut its way to prosperity or a healthier state budget. Slashing state spending would fuel a state recession, not cure it.
Raising taxes is never popular. But voters have sent a clear message to Topeka: Fix. This. Problem.
The goal is clear: Ensure that kids get a quality public education, the roads are comfortable and safe, the public is protected from danger, and the poor can rely on a safety net.
Because of decisions made years ago, meeting those goals is tougher than ever. The work begins today.