The Senate approved a package on Friday increasing personal income taxes and eliminating a tax exemption for businesses, sending the legislation to Gov. Sam Brownback, who must decide whether to use his veto pen to protect his signature tax policy at the risk of a showdown with the GOP-controlled Legislature.
The Legislature moved House Bill 2178 through both chambers in less than a week. The 2012 tax policy that Brownback defends fiercely and was the focus of his re-election campaign now stands on the brink of elimination.
Senators voted 22-18 to pass the bill, the bare minimum needed to pass. The margin fell well short of the 27 votes that would be needed to override a veto.
The vote was bipartisan, with Democrats joining Republicans to pass the bill. Some conservative Republicans voted no, however, as did a Democrat.
The Legislature’s February action on taxes — coming relatively early in the session — is the clearest sign yet many lawmakers believe they were elected to restore budget stability and wanted to move quickly.
Senate Vice President Jeff Longbine, R-Emporia, said the bill offered a path to protect education from cuts, and said the bill might be “our best shot.” The bill will allow lawmakers to protect education funding, pension and early childhood programs, he argued.
“For those that only want what they want, it’s going to be a difficult session. For those who are willing to take something that’s not exactly what they want, this is our best option,” Longbine said, pleading with senators. “If you believe in schools, you believe in KPERS, you believe in the Children’s Initiative Fund, this is our best option.”
In a fiery speech denouncing the plan, Sen. Ty Masterson, R- Andover, called the bill a “horrible, no good, very bad” tax plan, and a “piece of garbage.”
“This is our best shot? Think about who you’re shooting at,” Masterson said.
Under the proposal, income between $30,000 and $60,000 would be taxed at 5.25 percent, up from 4.6 percent currently. Income between $60,000 and $100,000 would be taxed at 5.25 percent as well. Income above $100,000 would be taxed at 5.45 percent. Income up to $30,000 would remain at the current rate of 2.7 percent.
The legislation would also restore a tax deduction for medical expenses. And it eliminates a tax exemption for limited liability companies that more than 330,000 entities currently use.
The Kansas Department of Revenue estimates the bill would generate about $590 million next year. The state’s budget shortfall is anticipated to exceed $500 million next year. Separate legislation will address the current-year shortfall of about $310 million.
Senate approval came a day after the House passed the bill by a comfortable margin of 76-48. Still, that’s less than the 84 votes needed for a veto-proof majority.
Since the bill wasn’t amended, it now heads to Brownback’s desk. Once the governor receives the bill he has 10 days to either sign or veto it. If he takes no action, it becomes law.
Brownback said earlier in the week he doesn’t support the bill, or broad income tax increases in general. Still, he said only that he wouldn’t sign the bill, not that he would veto it.
That leaves open the possibility he could let the bill become law without his signature.
“This plan also unfairly raises taxes retroactively on Kansas job creators, sending a negative signal to businesses looking to start or relocate in Kansas,” Brownback said in a statement this week. “There is a better way. My budget solves the challenges of today, has solutions for tomorrow and avoids punishing tax increases on middle class workers, families and job creators.”
Brownback’s budget proposal would increase taxes on cigarettes and alcohol, and reinstate taxes on income from rents and royalties. But it also relies on securitizing annual payments to the state from tobacco companies, an idea many lawmakers disdain.
Since the governor signed tax cuts in 2012, he has defended the policy as boosting small business. But revenue has fallen in Kansas, forcing multiple rounds of budget cuts.
Brownback and others have said a rural recession and low commodity prices have depressed revenue. But critics of the tax policy have said the law, and subsequent changes, have created volatility and allowed business owners to avoid taxes.
Senate Minority Leader Anthony Hensley, D-Topeka, said Brownback’s economic policies had caused the state to go broke. The 2012 tax policy cut out one leg of the state’s three-legged revenue stool that consists of property, income and sales taxes.
“Under our current governor, our tax system is way out of balance,” Hensley said.
Hensley railed against Republicans for setting up a Democratic tax plan for defeat during a debate on Thursday. He said the Democratic plan was better; nevertheless, he voted for the House tax plan, saying Brownback should be given a chance to fix the tax policy.
Senators opposed to the bill spoke out, but didn’t attempt to change the legislation through amendments.
Sen. Dennis Pyle, R-Hiawatha, said lawmakers were beginning to become addicted to tax increases, calling it a habit. The Legislature passed a sales tax hike in 2015, and other increases in years prior.
The bill came to the Senate floor directly from the House, bypassing the normal committee process. Pyle called that decision “interesting” and said the bill is bad for the state, predicting businesses would leave.
“People don’t want to admit there is a spending problem, and that’s partly why we’re here,” Pyle said.
Senate President Susan Wagle, R-Wichita, said the bill was sent straight to the floor because the Senate Tax Committee had held numerous hearings. She said that when cuts were suggested, some lawmakers said they couldn’t vote for cuts.
But, echoing statements from other conservative senators, she suggested she wants some level of spending cuts. She voted against the proposal.
“This is the plan for legislators who don’t want to vote for cuts,” Wagle said.
The Senate hasn’t passed a budget or legislation to balance the current-year budget, drawing the consternation of some senators. Sen. Rob Olson, R-Olathe, criticized the decision to run a tax bill before a budget bill, calling the process “backwards.”
Others, such as Sen. Steve Fitzgerald, R-Leavenworth, questioned the strategy at play. He wondered what lawmakers are trying to accomplish, adding he doesn’t understand how taking more money out of the state economy will help the economy.
He said spending is “out of control.”
“This is akin to the old medical practice of bleeding to make you feel better,” Fitzgerald said.
GOP cries to hold down spending drew scoffs from Democrats. Sen. Tom Holland, D-Baldwin City, said that since 2012, conservatives have essentially enjoyed a super-majority in the Senate and yet haven’t been able to control spending.
“They’ve had four years to get spending under control,” Holland said. “I don’t understand how this is supposed to magically happen now if they didn’t have the numbers before to make it happen.”
How Topeka-area lawmakers voted
Sen. Anthony Hensley — yes
Sen. Laura Kelly — yes
Sen. Vicki Schmidt — yes