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Fiscal cliff could lead to Kansas revenue bump

By JOHN HANNA

Associated Press

TOPEKA -- Kansas could gain some tax revenues if the federal government goes over its "fiscal cliff," but the boost isn't likely to come close to offsetting the expected problems, state officials said Tuesday.

Republican Gov. Sam Brownback's administration and the GOP-controlled Legislature don't have firm estimates on how much state revenues will increase if federal taxes automatically increase next year if Congress and Democratic President Barack Obama can't reach a deal on budget and tax issues. The state's income tax codes are tied to federal tax laws, often resulting in changes when the federal government raises or cuts taxes.

Legislators and other officials have focused more on the potential loss of federal funds if automatic federal spending cuts take effect without an agreement to avoid the fiscal cliff. And many of them believe the tax increases and spending cuts together would cause an economic slump overshadowing both.

Brownback spokeswoman Sherriene Jones-Sontag said the governor expects Obama and Congress to strike a deal. So does Kansas Democratic Party Chairwoman Joan Wagnon, a former state revenue secretary.

"Nobody really wants Armageddon to arrive," Wagnon said. "Nobody really wants the government to fail."

A report last month by the Pew Center on the States said at least 25 states link personal income tax deductions to federal regulations; at least 30 have tax credits tied to federal rules, and at least 23 have corporate income tax deductions linked to federal rules. Kansas is in all of those categories.

The ties between the federal and Kansas tax codes are not a new issue for state legislators, but in the past, proposals to "decouple" state and federal tax laws have arisen when federal tax cuts also have lowered state revenues. The Republican-controlled Legislature generally has been skeptical of the idea, partly because it could complicate the state's tax system.

Incoming Senate Majority Leader Terry Bruce, a Hutchinson Republican, said the state tries to "piggyback" on the federal tax code, "so that people don't have to fill out extra paperwork."

Bruce acknowledged he hasn't given much thought to how federal tax increases would boost state revenues.

House Taxation Committee Chairman Richard Carlson, a St. Marys Republican, added, "We're just going to have to look at the whole picture."

The picture in Kansas is complicated by the successful push by Brownback and other conservative Republicans to slash state income taxes this year to stimulate the economy.

The reductions are worth $4.5 billion over six years. Supporters believe they're spurring hiring and business growth, but the state faces a self-inflicted $295 million budget shortfall for the fiscal year that begins in July 2013.

Brownback's administration has been saying for months that the looming fiscal cliff represents a potential budget problem. This summer, Budget Director Steve Anderson instructed agencies to draft proposals for cutting spending 10 percent as a contingency.

The Federal Funds Information for States, a Washington-based organization tracking the effects of policy decisions on states, said states stand to lose $7.5 billion in federal funding in 2013 for 161 grant programs subject to automatic spending cuts. Kansas would lose almost $62 million, according to the group.

The State Department of Education would lose about $8 million in funds for special education programs and an additional $8 million for services that help students who are at risk of failing academically, said Deputy Commissioner Dale Dennis.

In contrast to the attention given the potential loss of federal funds, Jones-Sontag told The Associated Press in an email that the administration isn't preparing for an increase in state revenues because of the federal tax changes.

State Sen. Laura Kelly of Topeka, the ranking Democrat on the Senate Ways and Means Committee, said: "I can't imagine that whatever we would reap would be worth the overall disaster."

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Follow John Hanna on Twitter at www.twitter.com/apjdhanna