A plan for cutting individual income taxes in Kansas and helping the state’s small businesses cleared a state House committee Monday, but in tinkering with a proposal from the chamber’s Republican leaders, legislators could be proposing a bigger burden for poor workers.
The Taxation Committee approved a bill Monday that contains an alternative to GOP Gov. Sam Brownback’s proposal to overhaul the state’s individual income tax code. The committee’s voice vote sends the measure to the House for debate.
The bill still contains key elements from House GOP leaders’ plan. It’s less aggressive in cutting tax rates and helping businesses than Brownback’s plan, and it scales back a tax credit for poor workers, rather than eliminates it, as the governor had proposed. Also, the plan keeps other income tax credits and deductions that Brownback would eliminate.
The committee’s plan also reduces the state’s sales tax to 5.7 percent from 6.3 percent in July 2013, a promise lawmakers made in 2010 when they boosted the rate to help balance the state budget. Brownback had proposed keeping the rate at 6.3 percent to help offset other tax cuts.
Brownback and House GOP leaders said they want to overhaul the state’s income tax system to encourage businesses to expand or to come to Kansas. The governor and the committee want to cap the annual growth in state spending so that the state can further reduce income taxes in future years.
“We know what we’re doing now doesn’t work, right?” said Rep. Scott Schwab, an Olathe Republican, who voted for the bill even though he didn’t think it was aggressive enough. “Money’s going to go where it’s wanted. This bill at least takes a couple steps forward.”
But Democrats saw a disaster in the making, for poor families, the state budget and an ongoing, 10-year program of highway improvements enacted two years ago. Rep. Nile Dillmore, of Wichita, the committee’s ranking Democrat, called the cap on spending “arbitrary” and said it is intellectually dishonest to claim that cutting taxes will create economic growth and then prevent the state from tapping that growth.
He and other Democrats — and advocates of highway projects — also are upset because the bill would borrow $351 million from the state’s transportation program over two years to prop up other state programs, paying the loan back over seven years.
“The transportation program creates jobs,” Dillmore said.
Brownback’s plan would exempt the earnings of about 191,000 partnerships, sole proprietorships and other businesses from income taxes. House GOP leaders liked the idea, but they and the committee proposed phasing in the change over six years.
The governor’s plan became politically unpalatable for many legislators within a week of being unveiled last month. The governor proposed ending the tax credit for poor workers and boosting social services spending, but internal administration figures showed taxpayers with adjusted gross incomes of $25,000 or less would be the only group seeing a collective income tax increase — one exceeding 5,100 percent.
House GOP leaders avoided the problem by proposing to cut the tax credit for poor workers in half. With other changes in their plans, all classes of taxpayers would see their income taxes decline, and the percentage drop for the poorest group would far outstrip the decline for others.
That might not be true for the House committee’s plan, though the Legislature’s staff still must calculate the figures. The committee not only proposed scaling back the tax credit, but ending refunds greater than the taxes owed. For example, a worker who is due a credit of $500 but has a tax liability of only $100 receives a $400 refund.
The Department of Revenue believes the credit would go from providing $91 million in tax relief to poor workers and their families to providing about $30 million.
But the same no-refund policy would apply to other tax credits, including ones tapped by businesses or wealthier taxpayers.
Rep. Caryn Tyson, a Parker Republican, said limiting such tax credits would allow the state to “buy down” income tax rates more quickly, benefiting more taxpayers.