TOPEKA, Kan. (AP) — With political support for an income tax break championed by Kansas Gov. Sam Brownback having eroded, fellow Republicans in the GOP-controlled Legislature are spearheading an effort to end it.
Brownback’s revenue secretary, some business owners and groups such as the Kansas Chamber of Commerce planned to strongly defend of the tax break during a Kansas House Taxation Committee hearing Thursday afternoon. The 2012 policy benefits more than 330,000 farmers and business owners, and Brownback contends it fuels growth among small businesses.
But he and his allies are fighting political headwinds, considering voters ousted two dozen conservatives from the Legislature, giving both Democrats and GOP moderates more power. Plus, Kansas is one of several GOP-led states facing budget woes at least partly due to past tax cuts. Its projected budget shortfall totals $1.1 billion through June 2019.
Brownback’s critics believe ending the tax exemption for farmers and business owners could cover close to half of those gaps. And the governor already suggested his willingness to negotiate by proposing his own alternative for increasing taxes on business owners.
“It’s been building the last couple of years,” said state Rep. Susan Concannon, a moderate Beloit Republican who serves on the tax committee. “We’re responding to the wants of the people.”
At Brownback’s urging, lawmakers slashed personal income taxes in 2012 and 2013, dropping the state’s top rate by 29 percent. Lawmakers also exempted the profits reported by farmers and owners of limited liability corporations, sole proprietorships and other businesses on their personal income tax returns and not subject to corporate income taxes. The break also covers rents and royalties.
House committee chairman Steven Johnson, an Assaria Republican, is a strong supporter of repealing the full tax break, and top Republicans in each chamber also have voiced their support. Democrats have long backed the idea as well.
But it’s not clear how quickly legislators will vote on repealing the tax break because they’re divided over passing it as a stand-alone measure or as part of a comprehensive budget-balancing package.
Brownback’s counterproposal would reinstate income taxes on royalties and rents and increase annual filing fees for for-profit firms to raise about $147 million over two years as part of a larger package that also includes cigarette and liquor tax increases. He acknowledged this week to reporters that Kansas’ tax policies need “refining,” but added, “We need to maintain the heart of it, which is about small business.”
Critics of the targeted tax break argue that it’s unfair to allow professionals like doctors, lawyers and accountants to avoid paying personal income taxes while their employees still do. Brownback argues that his proposal to raise business filing fees addresses the issue by requiring each individual partner in a firm to pay a $200 fee annually, rather than having the business paying a single $40 fee.