TOPEKA — The Kansas Senate plunged into the chamber’s first tax policy debate of the session Thursday to defeat a bill developed by Democrats and moderate Republicans that featured repeal of a controversial business tax exemption and raised individual tax rates to close a deep state budget deficit.
While the Senate hit a roadblock, the House adopted a bill Thursday that would adjust tax law to generate more state revenue. Senate Republican leaders said the plan was to take up the House bill today.
“While the tax bill debated today in the Senate included some provisions I’d like to see incorporated into a final tax plan, it reached far too deep into hard-working Kansans’ pockets,” said Senate President Susan Wagle, R-Wichita. “We must approach our budget holistically — meaning, reducing state spending and avoiding a retroactive income tax increase on Kansans.”
The vote against Senate Bill 188 was 30-10, with Sen. Randall Hardy, R-Salina, joining nine Democrats in support of the legislation. Hardy said he broke rank with Republican colleagues because his constituents demanded tax reform.
“Today was an exercise in futility,” said Senate Minority Leader Anthony Hensley, D-Topeka.
Foundation for discussion in the Senate was the bill developed by Democrats and moderate Republicans that would substantially repeal the tax program embraced in 2012 by Gov. Sam Brownback as a vehicle for economic renewal and private-sector job growth.
The bill the GOP governor signed into law five years ago gave at least 330,000 business owners a full state income tax exemption and provided individual income tax reductions.
The state has been roiled by massive budget deficits for several years because equivalent cuts in state government spending weren’t adopted by lawmakers.
Sen. Tom Holland, D-Baldwin City, opened with a pitch for contents of Senate Bill 188, which would repeal the business-owner exemption retroactive to Jan. 1 and recreate a third individual income tax bracket applicable to people with the state’s highest income. The 2.7-percent and 4.6-percent rates now in state law would remain, but an upper-end bracket of 6.45 percent would be added.
Concern was expressed by some Republican skeptics of the bill that the income threshold for the new upper income tax bracket cut too deeply into middle-class Kansans.
In addition, the bipartisan bill rejected by the Senate would restore all standard and itemized deductions that existed in 2012, delete from state law a requirement to drop personal income tax rates in the future and preserve an income-tax exemption for low-income earners.
The bill would raise $1.2 billion in two years to deal with a deficit in the current fiscal year of approximately $310 million and a projected shortfall in the upcoming fiscal year of nearly $500 million.
The Senate also defeated an amendment offered by Hensley that included contents of a tax-hike, spending-cut bill that Republican leaders had planned to debate last week before dropping it from the calendar. That measure, which Hensley opposed, would have cut state spending on K-12 and higher education by approximately $150 million.
“It’s the House plan tomorrow. There’s more support for that,” said Sen. Jeff Longbine, an Emporia Republican and the chamber’s vice president.
Brownback recommended in January a plan that would preserve the LLC tax break, which totals approximately $200 million annually. He also suggested an increase in the state’s alcohol and tobacco taxes, expansion of business filing fees, withdrawing more money from the state highway fund, liquidating a long-term investment fund of at least $300 million and selling future proceeds of tobacco payments now dedicated to programs for children.