Tax deal reached; supported by Brownback
Talks resume on budget
House and Senate tax negotiators have reached an agreement to reduce individual income taxes. After jumping through some formal “agree to disagree” parliamentary hoops, the House will vote on the measure first, which is now contained in House Substitute for Senate Bill 177. That could happen as soon as Thursday.
The question on everyone’s lips at the Statehouse is whether either the House and/or Senate will pass the proposal.
It strings out full implementation of the cuts over five years. That softer implementation would likely delay negative ending balances to the state budget’s bottom line until past Fiscal Year 2018.
Here are the major changes to the bill from the conference committee agreement reached before the House sent the “nuclear option” Senate Substitute for House Bill 2117 to the Governor.
- On the “small business accelerator” which exempts non-wage income from Kansas income tax, the first $100,000 is exempt from tax from 2013 to 2016. In 2017, the first $250,000 is exempt. In 2018 and beyond, all non-wage income is exempt.
- The Earned Income Tax Credit (EITC) is 15%, down from the present 18%. The working poor are not forced to choose between the EITC and the food sales tax rebate as in earlier proposals. They can take both.
- The tax rates go from three brackets to two.
- In 2013 and beyond, those making under $30,000 pay at 3%.
- In 2013 and 2014, the top rate goes from 6.45% to 5.5%.
- In 2015, the top rate goes to 5.4%.
- In 2016, the top rate goes to 5.2%.
- In 2017, the top rate goes to 5.0%.
- In 2018 and beyond, the top rate goes to 4.9%.
Several tax credits for individual income tax filers are repealed. Those not repealed are:
- IDA Contribution (Individual Development Account)
- Historic Preservation Tax Credit
- Community Service Tax Credit
- Angel Investor Tax Credit
The proposal originally included eliminating the adoption expense tax credit and keeping the child day care tax credit, but it appeared that the conference committee decided to reverse that. They appeared to eliminate the child day care tax credit and keep the adoption expense tax credit.
The severance tax increase remains in the bill. The first 150 barrels of oil in new pool wells are exempt from the severance tax, but after that, all oil is taxed, including the first 150 barrels. This is opposed by the Kansas Petroleum Council.
Other agreements include the following.
- The Oil and Gas Depletion Fund legislation vetoed by Governor Brownback would be passed.
- The single factor (sales) formula for corporate income tax for new Kansas businesses employing more than ten people would be enacted.
- HPIP (High Performance Incentive Program) unitary credit sharing is enacted.
- The HPIP threshold to qualify is reduced in the five urban counties of the state.
- Beginning in FY 2014, the state will put $45 million per year into the Local Ad Valorem Property Tax Fund (LAVTR) to help hold the line on local property taxes.
- STAR Bonds (Sales Tax Revenue Bonds) sunset is extended.
What does all this cost? Here are the projected ending balances of the state general fund. Recall these are based on 4% growth, which may be optimistic. The retail sales tax growth between FY 1992 and FY 2009 was 3.4%.
FY 2013 – $717.7 million or 11.7%
FY 2014 – $574.6 million or 9.3%
FY 2015 – $522.6 million or 8.3%
FY 2016 – $517.4 million or 8.0%
FY 2017 – $474.9 million or 7.2%
FY 2018 – $356.8 million or 5.2%
Will conservative Republicans in the House vote for this version when it has healthy ending balances for five years, especially when they have already sent the Governor the “nuclear option” which almost certainly forces dramatic spending cuts? Are we on the off ramp of this wild ride?
That is unclear at this point.
Governor Brownback is encouraging legislators to “approve the compromise bill and send it to me. Otherwise, I have received Senate Sub for HB 2117 and will sign it.”
Meanwhile, the budget conference committee has resumed deliberations. Negotiators will meet again at 9:30 am Thursday. The tax deliberations are playing a part in the budget.
House Appropriations Committee Chair Marc Rhoades (R-Newton) said if the “nuclear option” income tax cut becomes law, there is about $25 million available for education in either 2013 or 2014. He also alluded to certain deliberations on education policies currently in conference.
Rhoades noted that if the Senate adopts the Tax conference committee report, there would be more in the ending balance to work with for education.