Gov. Laura Kelly pressed the Republican-led Legislature to proceed cautiously on tax reform legislation Thursday to avoid producing an impulsive, sweeping overhaul damaging to the state's financial interests.
She spoke out ahead of plans by the Kansas Senate to debate a bill crafted by Republican leadership and business lobbying interests in response to the governor's veto of Senate Bill 22, which was designed to benefit multinational corporations, wealthy individuals who itemize deductions on state tax forms and lower the state sales tax on food by 1 percent. It would have cost the state nearly $500 million over three years.
The new bill, expected to be brought before the Kansas Senate late Thursday, would modify the package to lower the hit on state tax revenue over a three-year period to $240 million. Both Democrats on the House-Senate conference committee on taxes refused to sign on to the deal, which left only the four GOP signatories.
"Time and again over the last several years, Kansas has made impulsive, poorly reviewed, sweeping changes to tax policy," said Kelly, a Democrat. "Above all, I believe this discussion should be guided by a thoughtful, data-driven, big-picture vision for Kansas, not by a hasty attempt to achieve an immediate political victory."
Kelly said she was concerned the 2019 Legislature would repeat the tax "experiment" enacted in 2012 by Gov. Sam Brownback that contributed to a series of revenue shortfalls, budget cuts and tax hikes. The state ought to allow a commission to study a wide range of tax issues before working through a reform bill in the 2020 legislative session, she said.
Under the bill, the state would deliver about $120 million over three years in tax benefits to businesses, including multinational corporations from future state income taxes when repatriating foreign earnings to Kansas.
People who itemized on Kansas income tax returns would be allowed to do so in 2019 while taking advantage of the newly doubled standard deduction on federal income taxes. An estimated 9 percent of Kansas itemized on state returns, but the bill would deliver those taxpayers about $155 million over three years.
Senate President Susan Wagle, a Wichita Republican who worked on negotiations for the replacement tax-cut bill, said lobbyists for bankers, realtors and the Kansas Chamber agreed to a downsized version of their original vision. GOP leaders planned to craft an alternative if Kelly vetoed the first offer, she said.
"There's a little something in here to like for everyone. I think it's a good bill. There's been a tremendous amount of compromise," Wagle said.
Wagle said the business community gave up on a proposed $53 million interest expense piece. Inserted into the deal was approval for Finney County to retain revenue collected from a 0.3 percent increase in the county sales tax that was improperly implemented in 2017, she said.
A major change from the bill vetoed by Kelly was designation of income from an expanded internet sales tax to buy down the state's sales tax on food. The internet tax would apply to out-of-state businesses with more than $100,000 in annual online sales in Kansas. Meanwhile, the definition of food was tweaked to include candy.
Rep. Steven Johnson, an Assaria Republican and chairman of the House Tax Committee, said projected growth in state internet sales tax revenue would result in the 6.5 percent food sales tax falling to 6 percent in January 2021 and 5.3 percent in January 2022.
"The buy down really starts in two years," he said. "It is set to continue to buy down food sales tax ... until such time as the food sales tax is zero."
Rep. Jim Gartner, a Topeka Democrat on the House negotiating team on tax legislation, said the overall package would reduce state revenue by $85.8 million in 2020, $65.6 million in 2021 and $87.5 million in 2022.
The overall influence on the state treasury of all pieces to the puzzle would be a negative $241 million, he said.
"It is a much smaller fiscal note because they've eliminated retroactivity on a number of items," Gartner said.