TOPEKA — Gov. Sam Brownback signed one of the state’s largest income tax cuts in history into law during a ceremony at the Capitol today, and Kansas wage-earners can expect to send less money to their state government starting next year.
Brownback said the income tax relief will make Kansas more competitive and add jobs.
“We’re going to be able to make this work,” he said.
But moderate Republicans and Democrats have decried the bill because it is projected to force the state to cut hundreds of millions of dollars in spending, potentially reducing funding for education and other services used by thousands of Kansans.
The cuts collapse the state’s three tax brackets to two. Married couples filing jointly will pay 3 percent on their first $30,000 of income and 4.9 percent on earnings beyond that. And owners of limited liability companies, subchapter S corporations and sole proprietorships will no longer have to pay taxes on nonwage income.
The new law increases the standard deduction for single head-of-household taxpayers from $4,500 to $9,000.
The governor’s signature punctuates a wide-ranging debate about taxes in Kansas that dominated much of this year’s legislative session.
Lawmakers pressed throughout the past few months for a milder tax-cutting plan that wouldn’t force state government to cut spending so drastically, so fast. But many Republicans and Democrats rejected alternative proposals because they feared those plans would also force big cuts in state services.
The Kansas Chamber of Commerce pushed for income tax cuts all year, along with many other business groups.
Derrick Sontag, director of Americans for Prosperity-Kansas, said the tax cuts will boost the state’s economy and give tax relief to families and businesses. “The move to lower the individual income tax is an acknowledgement of the undeniable fact that low income tax states achieve much higher levels of economic growth as compared to high income tax taxes,” he said. “Passage of this bill means Kansas can finally reverse the trend of stagnant population growth and taxpayers migrating to other states, all of which came about due to the tax-and-spend philosophy of the past.”
The bill Brownback signed today took a strange path to his desk.
It stemmed from a proposal that Brownback outlined in his state of the state address. But his proposal became politically unviable almost immediately because it proposed cutting many popular tax credits and exemptions, and it was projected to disproportionately hurt low-income Kansans while boosting cash flows for wealthier residents — particularly business owners.
When the governor’s plan moved through a Senate panel, senators voted to retain many of the credits and deductions Brownback wanted to cut. That drastically increased the cost of the plan.
Senators changed the bill even more when they debated it. Then they initially rejected the bill when they voted on it.
But Brownback’s administration pleaded with senators to approve the bill so that House and Senate negotiators could work out a better plan. Some senators say Brownback said he wouldn’t sign it, and Senate leaders said they were sure the bill would never become law.
But when an alternative plan emerged after weeks of negotiations, House members heard the Senate would reject the bill and quickly concurred with the massive bill the Senate had passed. That sent it to the governor, who said he would sign it, and his administration used it as leverage to press lawmakers to approve an alternative.
The Senate never voted on an alternative, leaving Brownback, who made income tax cuts a cornerstone of his agenda, with only one tax-cutting option.
The bill is projected to force $242 million in cuts in 2014, and cause more than $2 billion in cuts over five years. Brownback’s administration, meanwhile, has said the cuts could generate 23,000 new jobs beyond natural growth by 2020.
Many are skeptical of that projection.
The Kansas Economic Progress Council, a nonprofit group of businesses and chambers of commerce, estimates it will take more than 550,000 new jobs paying $50,000 a year by 2018 to pay enough taxes to fill the expected budget gap that year.
“That means Kansas employment would have to grow 50% over the next six years,” wrote Bernie Koch, the group’s executive director. “That’s over five times faster than Texas job growth over the last decade.”'
Michael Marvin, executive director of the Kansas Organization of State Employees, predicted the bill will cause financial disasters for the state.
"His tax plan is the height of political hypocrisy,” he said. “He talks about living within our means and spending wisely, yet with his signature he will oversee one of the largest budget deficits in the state's history.”