TOPEKA — A coalition of Kansas advocacy groups and unions is proposing reinstating a top income tax bracket for people making more than $40,000 a year, eliminating business tax exemptions and increasing the gas tax as a way to confront the state’s fiscal challenges.
The plan also formally ends Gov. Sam Brownback’s “March to Zero” income tax commitment and lowers the food sales tax rate.
The proposal, coming from five associations with a regular presence at the Statehouse, represents the first significant plan unveiled publicly. Brownback himself is developing a budget proposal, but he has divulged few details.
Lawmakers and the governor must find a way to eliminate a $350 million shortfall in the current fiscal year, which runs through June. And state leaders need to account for a projected decrease in revenue of more than $580 million in the next fiscal year.
The plan — coming from the Kansas Center for Economic Growth, Kansas Action for Children, Kansas Contractors Association, Kansas Organization of State Employees and Kansas-National Education Association — offers lawmakers a starting point. Politically, it might spare legislators from having to be the first to propose tax increases.
Uniting under the banner of “Rise Up Kansas,” the groups have been working since summer to develop a plan and have analyzed more than 70 variations. The aim of the proposal, they say, is to affect the fewest Kansans while isolating the costs to those who can best afford them. According to the group’s analysis, more than 90 percent of the plan’s adjustments will affect the top 20 percent of earners.
The coalition unveiled the plan Wednesday at a Statehouse rally. Some 200 people huddled under the rotunda as snow swirled outside.
“Your presence here sends a powerful message to policymakers you want thriving communities,” Annie McKay, director of Kansas Action for Children, told the audience. “We branded this campaign Rise Up Kansas because that’s what we’re asking both policymakers and Kansans to do. We need lawmakers to rise above political gamesmanship and embrace the urgency of this problem and rejecting anything that does not end this crisis for good. No more band-aids.”
At the heart of the plan, individual Kansans making $40,000 a year or more (or married individuals making $80,000) would see their income tax rate rise to 6.45 percent. Currently, they are taxed at 4.6 percent. Before the 2012 tax cuts, those making $30,000 or more were taxed at 6.45 percent.
Tax rates for the lower two brackets would remain the same. Individuals earning up to $15,000 would be taxed at 2.7 percent; those between $15,000 and $40,000 would have a rate of 4.6 percent.
Heidi Holliday, director of the Kansas Center for Economic Growth, said three brackets are needed to fund the state’s core priorities.
“Too many at the top aren’t paying their fair share. If you want to fix this problem, we’ve got to turn our tax code right side up,” Holliday said.
The coalition estimates the rate increase, along with reinstating taxes on pass-through business income, would net the state approximately $721 million. The pass-through exemption is sometimes also called the “LLC loophole.”
Under the plan, Kansas would temporarily divert four-tenths of a cent of sales tax currently dedicated to the highway fund to the general fund for three years, providing $200 million. But the plan calls for increasing the gas tax by an equivalent amount to hold the highway fund harmless.
In effect, the increase would hike the cost of gas by 11 cents a gallon, to 35 cents a gallon.
The state sales tax on food, among the highest in the nation when combined with local rates, would fall from 6.25 percent to 1.5 percent. Unlike many states, Kansas taxes food at the same rate as other products. The coalition estimates reducing the rate would cost approximately $100 million.
A spokeswoman for Brownback assailed the plan, saying “liberal special interest groups” have long-called for wealthy small business owners to pay their fair share.
“But today, the true victims of their tax and spend proposals were revealed,” spokeswoman Melika Willoughby said. “They are the receptionists, nurses, police officers, and other members of the middle class, working hard every day to put gas in the tank and money in their pockets to provide for themselves and their families.”
In total, the coalition says the plan generates approximately $820 million for the state in fiscal year 2018. In theory, that would be enough to cover the projected revenue decline of $580 million while leaving a positive ending balance.
The plan doesn’t cover the cost of the shortfall facing the state in the current fiscal year, however.
“It’s very, very important to have a long-term plan that fixes our balance problems and the fiscal situation before doing any kind of short-term fix or looking at the short-term things that have to be done,” said Duane Goossen, a former state budget director and fellow at KCEG. “The long-term plan has to be in place first.”
The group’s proposal eventually might compete with the governor’s plan.
Brownback is required to provide the Legislature a budget proposal in January. While the proposal isn’t typically made public ahead of time, the governor also has chosen not to act on the state’s current shortfall, frustrating lawmakers.
The governor’s office has said his plan won’t include furloughs or layoffs of state workers, and will not require significant cuts.
Goossen stressed the plan from the coalition is just a starting point, and other revenue options are available. Jessica Lucas, with the group Uncork Kansas, said the state could generate up to $40 million from the sale of licenses to allow grocery stores to sell full-strength beer and wine.
“Before we consider any tax increase or cuts to services, the Legislature should adopt the Uncork Kansas plan, which generates $40 million,” Lucas said.