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Jan. 18, 2024Topeka, Kan. |  By: AP

GOP lawmakers approve a ‘flat’ income tax for Kansas, but a governor’s veto looms

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TOPEKA, Kan. (AP) — Republican lawmakers in Kansas on Thursday passed a broad package of tax cuts promoted as widespread relief that the Democratic governor is likely to veto because she says it favors the wealthy and threatens the state’s budget in the future.

The opposing viewpoints kept the two sides locked in a political impasse as the window for meaningful tax cuts narrows.

The GOP-supermajority Legislature approved a plan to cut income, sales and property taxes by a total of nearly $1.6 billion over the next three years. But Gov. Laura Kelly is expected to veto the bill because it would move Kansas to a single personal income tax rate of 5.25% to replace three rates that now top out at 5.7%.

The measure cleared the Legislature on an 81-37 vote in the House after the Senate approved it Wednesday, 25-11. While Republicans appeared to have the two-thirds majority in the House to override a veto, the defections of two Republicans and a conservative independent in the Senate appear to leave them at least a vote short there.

A similar dispute thwarted big tax cuts last year, when a dozen other states cut taxes, according to the conservative-leaning Tax Foundation.

Kelly’s office wasn’t commenting Thursday, but she’s been public about her strong opposition to the “flat” tax proposal, viewing it as a boon to the state’s “super wealthy.” Also, her office released a projection Thursday showing that the GOP plan would cause a budget shortfall in 2029.

Democratic state Rep. Henry Helgerson of Wichita argued during Thursday’s debate that lawmakers cannot enact the Republicans’ tax cuts without committing to budget cuts first.

“Right now, I don’t see it,” he said.

The figures released by Kelly’s office didn’t show what assumptions it used for growth in spending or revenues over time, and Republicans dismissed them. Senate President Ty Masterson, a Wichita-area Republican, said he agrees that the state faces future budget problems if Kelly wants to “spend like a drunken sailor.”

“However, if the state engages in basic fiscal responsibility, there will continue to be ample money available to deliver ongoing and meaningful tax reductions to Kansans,” Masterson said in an emailed statement Thursday.

Republicans also defended their package as fair because it contains provisions that will exempt roughly 310,000 additional Kansas residents from income taxes, on top of the 40,000 or so poorest ones. The plan included provisions that would exempt the first $20,300 of a married couple’s income from state taxes — more if they have children, with the amounts rising with inflation after 2025.

Republican leaders married the income tax proposals to a proposal from Kelly to eliminate the state’s 2% sales tax on groceries starting April 1 and proposals she embraced to exempt all of retirees’ Social Security income from taxes and to lower homeowners’ property taxes.

“It’s a great package,” Republican state Sen. Caryn Tyson, the Senate tax committee’s chair, said before Wednesday’s vote in her chamber. “It’s got a little something for everybody.”

The impasse last year over taxes had Kansas projecting that it will have nearly $4.5 billion in surplus cash at the end of June, equal to 17% of the state’s current $25 billion budget.

Yet Kansas also is debating tax cuts at a time when the nationwide tax-cutting trend could be slowing as a revenue surge fueled by federal spending and inflation recedes.

Kansas’ state tax collections are in line with last year’s but about 1.1% below projections. Monthly collections have fallen short of expectations each of the past three months; that happened only five times in the previous six years.

“This is a time when state revenues and surpluses, we’re seeing, are starting to flatten across the country,” said Neva Butkus, a state policy analyst for the left-leaning Institute on Taxation and Economic Policy.

Butkus also said that, even with its provisions aimed at helping poor families, the GOP package would widen the gap between the poorest, who already pay a higher percentage of their incomes in taxes, and the wealthiest.

Figures from the Kansas Department of Revenue show that with the proposed single-rate tax, a little more than half of the raw dollar savings would go to the 3.8% of filers from Kansas earning more than $250,000 a year. That group pays 41% of the personal income taxes collected from Kansas residents.

The smallest cuts, both in terms of raw dollars and the average percentage, would go to Kansas residents earning between $50,000 and $75,000 a year.

“Not only does it help the wealthy, it does nothing for the middle class,” said state Rep. Tom Sawyer, another Wichita Democrat.

But many Republicans argued that a simpler income tax system is fairer and said Kansas needs to become more competitive with other states. The Tax Foundation said in a 2022 report that Kansas residents pay more of their incomes in taxes than residents of most surrounding states.

In 2022, Iowa moved to a flat tax, initially set at 4.4% but scheduled to drop eventually to 3.9%. Now, GOP Gov. Kim Reynolds is pushing to cut the rate to $3.65% for this year.

“It’s not the future,” he said.