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Kansas' governor and GOP leaders have a deal on cuts after GOP drops 'flat' tax plan

Kansas Budget Taxes
Posted at 10:08 AM, Apr 04, 2024

TOPEKA, Kan. — Top Republican legislators and the Democratic governor in Kansas have brokered a deal on cutting taxes after GOP leaders gave up on moving the state to a single-rate personal income tax that the governor strongly opposed.

The Kansas House and Senate were expected to vote on the compromise package Thursday or Friday, and Gov. Laura Kelly was expected to sign it if it reached her desk. The plan would save taxpayers about $1.4 billion over the next three years, but it is smaller than separate plans approved last month by each chamber and smaller than one passed by the Republican-controlled Legislature in January that Kelly vetoed.

GOP leaders wanted to move Kansas to a single personal income tax rate from the three current rates and cut the top rate from its current 5.7%, which Kelly said would benefit the “super wealthy.” The same dispute thwarted major tax cuts in 2023, when a dozen other states cut income tax rates, according to the conservative Tax Foundation.

The compromise plan preserves three personal income tax rates but cuts the top rate to 5.5%. Republican leaders didn't have the two-thirds majorities necessary to override a Kelly veto of a single-rate plan, thanks to Republican defectors who, as state Senate President Ty Masterson put it Wednesday, “chained themselves to the tree of progressive taxation.”

“So, you know what?” We're just going to cut the tree off on the top," said Masterson, a Wichita-area Republican. “Everything else is a win.”

The bill also would eliminate state income taxes on retirees' Social Security benefits, which kick in once a person receives $75,000 a year. It would also increase the state's standard personal income tax deductions, increase an income tax credit for child care expenses, reduce property taxes the state imposes to raise money for public schools and end the state's already expiring 2% sales tax on groceries six months early, on July 1.

Still, the final deal inspired bipartisan grumbling. Kelly's office and GOP leaders worked it out privately instead of three House and three Senate negotiators drafting a plan, with some discussions in public.

House Taxation Committee Chair Adam Smith said before either chamber voted that he didn't know whether he'd support the deal — even though it was his job to explain it to colleagues and he'd normally promote a plan backed by GOP leaders.

“I’m hearing a lot of dissent,” said Smith, a western Kansas Republican. “I've got to carry the bill, and it’s bad when I don’t even know if I’m going to vote for it.”

Republicans had wanted to cut taxes by between $500 million and $600 million annually or between $1.5 billion and $1.8 billion over three years. The new plan, worth about $430 million annually, is less generous in increasing standard deductions than the Senate's plan, which boosted the one for married couples to $22,000 to help lower-income families.

Some lawmakers also said the new plan doesn't cut property taxes enough amid rising home values and local levies. For the owner of a home at the Kansas median value of $210,000, the annual savings would be about $140.

“This, to me, doesn't cut it,” said northeastern Kansas Sen. Tom Holland, who represented Democratic senators in tax negotiations. “There are monster increases every year.”

The deal in Kansas came two weeks after Georgia's Republican-controlled Legislature passed personal and corporate income tax cuts that GOP Gov. Brian Kemp favored. Like Georgia, Kansas has a big budget surplus — still projected at more than $4 billion for the end of June 2025.

But tax debates in Kansas are fraught because of a nationally notorious experiment in cutting income taxes in 2012 and 2013 under GOP Gov. Sam Brownback. Large budget shortfalls followed and persisted until bipartisan legislative majorities reversed most of the cuts in 2017 over Brownback's opposition.

Kelly won the first of her two terms in 2018 by running against Brownback's fiscal policies, and she still cites them in criticizing Republican proposals. She called the GOP plan she vetoed in January fiscally reckless.

Republican leaders said repeatedly that they weren't repeating the mistakes of 2012 and 2013 and that, with its huge surplus, Kansas could sustain their proposed cuts.

But, unable to override a Kelly veto, they became less willing to chance having no cuts enacted this year. All 40 state Senate seats and 125 House seats are up for election this year.

“We've got to get something, and this is a compromise,” said House Speaker Dan Hawkins, a Wichita Republican. “We need to get it done and get out of here.”