Kansas House advances cuts in sales, income taxes

TOPEKA, Kan. (AP) -- Proposed cuts in Kansas' sales and income taxes advanced Wednesday in the state House, but members stripped out a key provision of the legislation aimed at stabilizing the state budget.

The House gave initial approval to the bill on an 82-37 vote, with only majority Republicans supporting it. The tally suggested that GOP leaders will have enough votes to pass the measure on final action, which is scheduled for Thursday. Passage then would send it to the Republican-dominated Senate, which approved its own tax plan last week.

Republican Gov. Sam Brownback wants to follow up on massive individual income tax cuts enacted last year by further reducing income tax rates and positioning the state to phase out personal income taxes altogether. But Republican lawmakers are split over whether the state should cancel a decrease in the sales tax scheduled by law for July, as Brownback proposes.

The House bill would allow the sales tax to drop as planned, but the trade-off is both less aggressive cuts in income tax rates and greater budget uncertainty. Brownback wants to guarantee rate cuts over the next four years; the House plan would drop them each year only if overall revenues grow more than 2 percent.

House members eliminated a provision of the bill that would have diverted $382 million from highway projects over two years to other budget uses. The idea had stirred bipartisan opposition because of the jobs tied to road projects.

Many GOP legislators share Brownback's goal of phasing out personal income taxes, believing it will permanently strengthen the state's economy.

"Jobs for our Kansas families create the self-respect and the dignity of work, providing for our families," said House Taxation Committee Chairman Richard Carlson, a St. Marys Republican. "They want self-reliance, and the private sector of our economy can provide those jobs and opportunities."

The final version of tax legislation is likely to emerge from negotiations between the House and the Senate, and Republican leaders are confident the two chambers can compromise. The Senate's tax bill embraces Brownback's more aggressive income tax rate cuts and his plan to maintain the current sales tax rate.

Brownback's administration argues that income tax cuts will benefit everyone. But critics note that eliminating personal income taxes will require Kansas to rely most heavily on its sales tax to finance state government. Poor families tend to pay a higher proportion of their incomes to that tax than wealthy ones, and Kansas applies the full levy to groceries.

Also, much of the tax legislation in both chambers is actually raises revenues to stabilize the budget following last year's aggressive income tax cuts. The state reduced individual income tax rates, dropping the top one to 4.9 percent from 6.45 percent and exempting the owners of 191,000 businesses from income taxes.

"Somewhere, somehow, somebody is going to have pay more so some pay less," said Rep. Nile Dillmore, a Wichita Democrat. "Somewhere, there are losers."

Many lawmakers also had worried about the state's 10-year transportation program, begun in 2010, because of the potential diversion of highway funds to other uses.

Transportation Secretary Mike King, a Brownback appointee, warned this week that the diversion would force the state to delay projects already planned. He said Wednesday that allowing the funds to flow "will benefit every county in the state."

"We're excited the House supported Kansas transportation," King said.

The sales tax also emerged as a key issue because keeping it at is current rate would raise more than $1.5 billion over the next five years and close a projected budget shortfall caused by last year's cut. It's now 6.3 percent and it's supposed to drop to 5.7 percent.

Legislators boosted sales tax rate in 2010 at the urging of Brownback's predecessor, then-Democratic Gov. Mark Parkinson, to balance the budget, but they promised most of the increase would be temporary. Many lawmakers, particularly in the House, don't want to break the pledge, but some GOP legislators are willing to do it if income tax rates drop further.

Brownback wants to drop the top income tax rate to 3.5 percent from 4.9 percent for 2017. Legislative researchers project that the top rate for 2017 under the House plan would be 4.88 percent.

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The House tax plan is House Sub for SB 84. The Senate plan is contained in HB 2059.

Online:

The House tax plan and Wednesday's vote to advance it: http://bit.ly/WVOrLV

The Senate tax plan: http://bit.ly/ZDggDU

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