TOPEKA, Kan. (AP) – Republicans who control the Kansas Legislature were trying to overcome deep divisions Friday over raising taxes to close a projected budget shortfall.
Key issues were how much to raise the state’s 6.15 percent sales tax and how much to increase taxes for business owners who benefited from a 2012 policy that allowed 281,000 of them and 53,000 farmers to escape income taxes on their profits.
Legislators were looking to raise at least $406 million in new revenues for the fiscal year beginning July 1 to avoid a budget deficit. Republican Gov. Sam Brownback has threatened to veto any plan that he believes is too aggressive about increasing business taxes.
Here are things to know about the Legislature’s tax debate.
Three Senate and three House negotiators resumed talks Friday evening after the House voted 82-27 against a plan to raise the sales tax to 6.45 percent and to defy Brownback’s veto threat by raising taxes on business owners by $101 million during the next fiscal year.
The House rejected a plan Thursday that was similar to one Brownback outlined last week, boosting the sales tax to 6.65 percent and increasing business taxes by the governor’s upper limit of $24 million.
WHY TAX INCREASES?
The state’s budget shortfall arose after GOP legislators slashed personal income taxes in 2012 and 2013 at Brownback’s urging as an economic stimulus. Not only were the profits of farmers and business owners exempted, but income tax rates were cut. Lawmakers also committed to eventually phasing out income taxes.
SALES TAX INCREASES
Critics contend increasing the sales tax will hurt poor and working class families. Also, only eight states have a statewide sales tax of more than 6.5 percent, led by California, with 7.5 percent.
But Brownback and many Republicans argue the state’s economy will grow more if it relies on consumption taxes to fund its government.
HELPING THE POOR
Even as they consider boosting the sales tax, legislators are debating proposals to drop the sales tax rate on food to as little as 5.7 percent to help poor families.
Also, Brownback last week proposed ending personal income taxes for some 388,000 filers but lawmakers have so far wanted to push such relief to 2017.
Brownback touts the income tax break for business owners and farmers as a “small business accelerator.” Critics contend the policy is not fair because some businesses didn’t benefit, and even when business owners did, their employees’ wages remained taxed.
STILL MARCHING TO ZERO?
Brownback has argued that Kansas still has a “pro-growth” economic policy if it raises consumption taxes to allow future income tax cuts. But proposals being considered by legislative negotiators would lessen rate cuts that were promised through 2020, then stop them.
The plan Brownback outlined last week would increase the state’s cigarette tax by 50 cents a pack, to $1.29. Greater increases haven’t found much favor, and negotiators dropped an early proposal to impose the state’s first tax on electronic cigarettes.
Legislators also expect to raise taxes on HMOs to raise an additional $48 million toward closing the next fiscal year’s budget shortfall, but they haven’t settled on the final language.
Most of the tax would be paid by three companies that manage the state’s Medicaid program for the needy and disabled, but the move would in turn attract additional federal funds for the program.