Gov. Laura Kelly's tax reform council got an earful Thursday from influential business lobbying groups yearning for hefty tax breaks, while individuals pleaded for a lower state sales tax on groceries and preservation of a tax credit for low-income Kansans.
Woven into the discussion were warnings from the state budget director and a K-12 education advocate about avoiding tax overhaul that compromised the budget and gave traction to factions eager to abandon pledges to spend more on education, highways and other priorities.
The bipartisan panel created by Kelly is expected to deliver recommendations before start of the 2020 legislative session in January.
Eric Stafford, vice president and lobbyist at the Kansas Chamber, said the organization would again pressure lawmakers to accept state income tax reform enabling individuals and businesses to take full advantage of changes to federal tax law signed two years ago by President Donald Trump. Legislation along that line approved by the House and Senate was vetoed by Kelly in the 2019 session.
Stafford recommended state law be altered so married filers could take the new federal standard income tax deduction of $24,000, but continue itemizing deductions on their state returns. Kansas law forbids such decoupling in terms of tax deductions.
State law also should be amended so foreign income funneled by corporations to Kansas won't be subject to state taxation, Stafford said.
"The federal tax changes in 2017 have resulted in an unintended tax increase on individual taxpayers and businesses in our state," Stafford said.
Beth Low-Smith, vice president of policy at KC Healthy Kids serving Kansas and Missouri, said the state's 6.5% sales tax on food was damaging lives. Kansas is among seven states charging the full sales tax rate on groceries. Neighboring states range from no sales tax in Nebraska and Colorado to a rate of 4.5% in Oklahoma. In Missouri, the sales tax is 1.2%.
"Food is not a luxury item," she said. "Kansas' state sales tax on food puts an unfair burden on low-income families, hurts rural grocers and their employees and drives shoppers across state lines."
Sister Therese Bangert, representing Sisters of Charity of Leavenworth, told the council that lawmakers shouldn't abandon the state's earned income tax credit championed by the late President Ronald Reagan as the "best anti-poverty, the best pro-family" reform to emerge from Congress.
She said legislators drawn to repealing the tax credit need to be reminded the majority of $300 placed in the pocket of a low-income parent with children would be spent in the local community.
Mark Tallman, lobbyist with the Kansas Association of School Boards, said state lawmakers had a constitutional obligation to equitably and adequately finance K-12 public schools.
"The courts, Kansas cost studies commissioned by the Legislature and independent research all agree that funding is an important factor in student educational performance. More funding is associated with better results," Tallman said.
Patrick Vogelsberg, a lobbyist with the Kansas Association of Realtors, said the Legislature should strengthen the state's commitment to a robust home mortgage interest deduction on state income taxes. The 100% deduction was slashed in 2012 to 70% at behest of Republican Gov. Sam Brownback and frozen at 50% in 2015 with Brownback's consent.
In 2017, legislation repealing much of Brownback's tax reform program launched in 2012 included a provision restoring the mortgage interest deduction to 100% by 2020. Subsequent tweaks to federal law on itemized deductions is interfering with that plan, Vogelsberg said.
"Tax benefits specifically for home ownership should be prioritized," he said. "The state of Kansas should be encouraging home ownership rather than making home ownership harder."
Larry Campbell, the Kelly administration's budget director, offered advice to council designed to dampen enthusiasm for massive tax cuts. He delivered the message despite the recent addition of $525 million in potential tax revenue analysts believe the state treasury could receive in the current and upcoming fiscal years.
He said financial discipline was required to meet existing spending commitments and to comply with goals of quickly repaying state debt and halting raids on highway funds at the Kansas Department of Transportation.
"It doesn't appear to me to invite interest in another huge tax cut," said Janice Lee, a former Democratic state senator from western Kansas and co-chair of the governor's tax council.