The Republican-controlled Kansas House approved wide-ranging tax legislation Thursday. The measure would reduce sales taxes on food, which could help Kansans across the income spectrum. It would also give some big corporations a break, and that will likely spark a showdown with Democratic Gov. Laura Kelly.
Senate leaders introduced the initial version of the bill earlier this session in response to the federal tax overhaul of 2017. They pushed for the legislation to allow Kansans to continue itemizing on their state taxes even if they no longer do so on their federal returns because of larger standard deductions. They also wanted to free Kansas businesses from owing state taxes on overseas income that Congress incentivized them to repatriate.
Supporters of the proposal in both the Senate and the House said without it the federal tax cuts would trigger a state tax increase on businesses and people who itemize.
Opponents argued it amounts to a tax break for big business and the wealthy and would prompt the state to forfeit an estimated $400 million in revenue over the next three years just as its finances are stabilizing.
“I understand the temptation to keep the money,” Republican state Rep. Les Mason said during the House debate Thursday. “Are we going to do the right thing? Are we going to get this money back to the rightful owners?”
To make the legislation more palatable, House lawmakers bundled in a provision to cut the sales tax by 1 percentage point, which alone would lower state tax collections by around $175 million over three years. Another added provision would offset that some by collecting more from online purchases, raising an estimated $88 million during that time.
If lawmakers advance it with another vote, the bill will head to negotiations between the chambers to reconcile the changes made by the House.
Gov. Kelly hasn’t explicitly threatened to veto the bill, but she has said that tax cuts should not be a priority right now. Instead, she said the Legislature should come up with the money to satisfy the Kansas Supreme Court that school funding is adequate.
“It is time to put the priorities of Kansas families first and fund our schools,” she said last month. “With a Supreme Court deadline fast approaching, the Legislature should be focusing on education, not another irresponsible tax plan.”
The state’s finances are on solid ground since lawmakers reversed many of the tax cuts passed in 2012. But, Kelly has said making major tax changes could cause a repeat of the fiscal troubles Kansas faced during former Gov. Sam Brownback’s tenure.
In a way, the internet tax collections and food sales taxes are a political dare legislators may drop in front of Kelly. The food sales tax cut and internet sales tax provisions appear quite popular and they could be used to pressure her to sign the bill into law or stoke criticism if she vetoes it.
“It’s all about the hate of our governor,” Democratic state Rep. Cindy Neighbor said on the House floor. “It’s time to quit playing party politics.”
Reducing the food sales tax has broad support as a way to benefit lower-income Kansans, but it never happens because of the huge financial cost to the state budget.
Some House members blasted the bill for only cutting the state food sales tax from 6.5 to 5.5 percent. Local sales taxes further raise the rate.
Uncertainty over the cost of the bill is also a sticking point, with supporters and opponents alike questioning the accuracy of the estimates.
“It’s a shot in the dark,” Republican Senate President Susan Wagle said earlier in the session. She wondered aloud how much Kansas could stand to lose if the legislation doesn’t pass and businesses leave the state for a more favorable tax climate.
The uncertainty is exactly why Democrat Jim Gartner opposed it Thursday in the House. Without knowing the true cost, he said the bill could put the state in dire financial straits if the country enters a recession.
“What are we doing?” he asked on the floor. “We have no data. No concrete data.”
Stephen Koranda is Statehouse reporter for Kansas Public Radio and the Kansas News Service, a collaboration of KCUR, Kansas Public Radio, KMUW and High Plains Public Radio covering health, education and politics. Follow him on Twitter @kprkoranda.
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