Andrew Bahl
| Topeka Capital Journal
If you don’t succeed at first, try again.
That’s the motto of the legislature trying to give Kansans an income tax break – but the COVID-19 pandemic has given both proponents and opponents of the legislation a new sense of urgency.
Tax policy is always a strained debate in Topeka, thanks in large part to the controversial tax cuts enacted by lawmakers in 2012 at the behest of former Governor Sam Brownback. They were overturned five years later after they had failed to bring about the desired economic upswing and have been touted as a warning story by Democrats for years.
Republicans argue that recent efforts to give residents a tax break are completely different from the cuts made in the Brownback era.
The current legislation is in large part based on the 2017 legislation passed by Congress, one of the biggest changes in federal tax law in recent years.
However, due to previous state laws, Kansas has not yet been able to reject certain regulations, meaning residents and businesses have paid millions of dollars more to the state coffers than they would otherwise have.
“It is intellectually lazy to say these are brownback tax cuts or corporate tax cuts,” said Eric Stafford, lobbyist for the Kansas Chamber.
But Governor Laura Kelly had vetoed similar laws in the past because proponents were unable to organize an override vote. She argued it would be a major blow to public finances.
She has already stood up to these recent efforts, firing a barely disguised shot at her state address earlier this month.
“We are only a few years away from the brownback tax experiment, and it seems like some of my colleagues in the legislature have already forgotten how devastating this experiment was to our economies, our schools and our future,” she said.
What does the bill do?
The law, introduced as Senate Law 22, has several components, some of which are new due to the COVID-19 relief laws passed by Congress last year.
Eagle-eyed watchers of the legislature will remember some of the provisions of the past few years. The biggest change previously proposed would allow Kansans to include deductions on their state tax returns whether or not they do so on their federal taxes.
This is important in that the comprehensive law on tax cuts and employment signed by President Donald Trump in 2017 prevented residents from listing their federal taxes while some state deductions disappeared due to the legislation. This has created a dilemma for some Kansans.
“If you have a family that has had significant medical expenses, they can no longer deduct them from their state income taxes,” said Senator Caryn Tyson, R-Parker, chairman of the Senate Tax Committee. “We accidentally harm this family.”
This has hurt the state’s tax office – something that proponents of the bill never intended.
“We need to give small business owners that flexibility … and not have this unforeseen and unfair tax hike,” said Dan Murray, director of the state chapter of the National Federation of Independent Businesses.
The bill also cuts provisions of state tax legislation from federal legislation, a process known as decoupling. Most importantly, giving businesses more flexibility to bring overseas profits back to Kansas without paying taxes on them.
When federal officials decided to tax some overseas profits in 2017, the aim was to prevent companies from hiding revenue overseas with lower tax rates. But proponents of the economy argue again that this is tax revenue the state receives that the Kansas legislature never signed up to.
Stafford argues that this makes the state less competitive compared to some of its counterparts who have already opted out.
Other provisions of the bill take into account the CARES law, which was passed last April when the COVID-19 pandemic began to rage.
This includes exempting paycheck protection program loans from state taxes as long as an individual pays federal taxes on those funds.
The legislation also allows companies to take advantage of some of the tax changes in the CARES bill, though Tyson said those items could be removed to make the bill easier to pass.
Why go so fast?
Put simply, the COVID-19 pandemic has accelerated the debate on this matter significantly.
Legislators were unable to fully address the issue in the last session after the virus stalled the 2020 legislature.
Tyson said she didn’t want to leave anything to chance in this session, especially considering a likely veto from Kelly.
While she recognized that SB 22 could evolve, the bill could be out of committee as soon as next week.
What impact would it have on the state?
The bill could have a significant impact on the state’s tax revenue, which is the main criticism for opponents.
Government revenues are besieged by the COVID-19 pandemic. Researchers forecast a budget deficit of $ 152 million. Some say now is not the time to aggressively cut taxes.
“Given the current budgetary situation in Kansas, it would be quite risky, and I don’t think there is any tax responsibility in driving this legislation forward,” said Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities in Washington. “In fact, this bill goes in the opposite direction of what the state should be doing.”
The Kansas Division of Budget estimates the state will lose over $ 620 million over the next three years if the bill is passed. That number could change, and Tyson said changes to the bill could reduce lost sales.
Proponents of the legislation counter that the hit would become much more manageable as business activity will increase in response to the implementation of the law.
Democrats, including Kelly, hit back, pointing to the failure of Brownback’s tax cuts to boost the state’s economy.
Stafford said it was different.
“If the state is successful, the more tax base we have, the more money we have for schools and the more money we have for roads and the critical infrastructure that people here like to fund,” he said.
Does the legislator consider other tax issues?
Legislators are also looking into other ways to reduce Kansans’ tax burdens.
At the top of their wish-list is another attempt to get local officials to hear them and notify residents in writing if they plan to raise property taxes. The bill would also remove the requirement that a majority of community residents approve any property tax increases.
While groups representing local governments have been skeptical of the measure in the past, they appear to be more open to it in 2021. Kelly, who vetoed similar laws in the last session, also said earlier this month, “There was a lot in there that I really have.” like.”
And the bill was passed by an overwhelming majority in the Kansas Senate, with only one member voting against: Senator John Doll, R-Garden City, who said his colleagues were moving too fast in advancing the legislation.
“Every time we try to give local and regional authorities a mandate, it always seems to come back because it doesn’t age well,” Doll said in a speech in the Senate. “Maybe it’s because the county and local government know what they’re doing.”
Tyson also said there is an interest in reducing the tax burden for seniors and providing tax breaks to residents whose property is destroyed by a tornado or other natural disaster.