By Chad Frey
December 13, 2016
A coalition of organizations presented a plan for comprehensive tax reform last week, and representatives of “Rise Up Kansas” are now traveling the state to talk about the plan.
Tuesday, Annie McKay, president and CEO of Kansas Action For Children, and Heidi Holliday, executive director of Kansas Center for Economic Growth, stopped in Newton to pitch the five point plan for restructuring the Kansas tax code.
“We can not just piecemeal a solution,” Holliday told The Kansan. “We can’t just eliminate the LLC exemption and hope that will fix this. It won’t. It is not big enough and it leaves us with the march to zero. We have to be looking at all the elements of this. We have to look at the budget as a whole and how we restore the budget as a whole.”
The Rise Up Kansas Coalition’s plan is the first detailed package for the GOP-controlled Legislature to consider after convening its annual session in January. Whether it will be is yet to be seen, as it’s not a bill championed by a specific lawmaker.
The debate in Kansas could occur as Congress mulls proposals from President-elect Donald Trump to cut the federal government’s top tax rate and reduce the number of tax brackets – both of which Kansas did in 2012 and 2013. Since then, the state has struggled to balance its budget and faces projected gaps totaling $1.1 billion in spending for existing programs through June 2019.
Thus far the Legislature and Gov. Sam Brownback have used funding sweeps from the Department of Transportation, an increase to the state sales tax and using other funds to prop up the general fund.
“We have prioritized tax reform because early childhood programs supported by the Children’s Initiative Fund have been in the crosshairs and cut to the tune of $60 million,” McKay said. “That may not sound like a lot when we talk about the size of the budget gap, in terms of what we are missing out in terms of Kindergarten and not meeting needs a cross the state, it is a significant amount of resources.”
McKay said the governor has discussed selling the Children’s Initiative Fund multiple times. The fund was established after Kansas was part of a settlement agreement against tobacco companies. Kansas placed those funds, by statute, in to a fund for early childhood education funds.
McKay said she is fearful that fund will again be a target as the Governor and Legislature attempt to fill a multi-million dollar budget hole next month.
She believes comprehensive tax reform is the way to protect those funds. The tax reform plan has five key points: ending the march to zero (a move to zero income tax), eliminating the LLC loophole, implementing a third tax bracket, modernizing gas taxes and lowering food sales tax.
Elections this year left the Legislature less conservative, and at least one key revenue-raising idea the coalition has put forward is on GOP lawmakers’ list of potential solutions.
“We have talked with policy makers through the last session to help bring them along,” Mckay said. “We ran 72 different models to try and strike a balance to meet the revenue target that not only closes the structural gap, but also leaves us some resources to invest.”
According to the Associated Press, Brownback spokeswoman Melika Willoughby criticized the plan, which claims the state would raise $821 million during the next fiscal year that begins July 1, as coming from “liberal special-interest groups.” She said its “victims” would include middle-class taxpayers “working hard every day to put gas in the tank and money in their pockets.”
The income tax cuts were touted by Brownback and others as a way to stimulate the economy, but even some GOP voters view the experiment as a disappointment.
“Since the 2012 tax cuts we have had nine consecutive rounds of budget cuts, three credit downgrades and record high debt,” Holliday said. “That does not even take into account the impact on our highways, social services across the state, on our education systems and everything else. Kansans have born the brunt of this experiment on the state. We are at a point and political climate with the legislature coming in, 30 percent of it new, are looking for solutions.”
Critics also contend the policies – including going from three to two brackets and cutting its top personal income tax rate by 29 percent, to 4.6 percent – benefited the state’s wealthiest residents most.
The coalition’s plan would revive the third tax bracket and the old top rate of 6.45 percent for individuals earning $40,000 or more and married couples earning $80,000 or more annually.
The state also exempted more than 330,000 farmers and business owners from paying income taxes on their profits or other non-wage income, such as royalties. The plan would eliminate the exemption, which some GOP lawmakers also have suggested.
Motor fuels taxes would increase by 11 cents a gallon, to 35 cents for gasoline, to help finance highway projects so other revenues could be diverted elsewhere.
Offsetting the tax increases, the state would drop its sales tax on groceries to 5 percent, from the current 6.5 percent, to help poorer families.
It would not address a projected $345 million shortfall in the current budget, but coalition members said the short-term gap could be addressed after lawmakers settle on a long-term budget fix.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, called it “a good starting point.”
But incoming House Speaker Pro Tem Scott Schwab, a conservative Olathe Republican, said GOP lawmakers are likely to be wary – particularly because the plan would affect farmers who are battling a slump in agriculture.