House Minority Leader Vic Miller leads a meeting April 6, 2023, of House Democrats to review legislation they would vote on. (Sherman Smith/Kansas Reflector)
TOPEKA — Kansas lawmakers passed a tax cut package in the early Friday morning hours that fuses a flat tax rate for individual income with an accelerated reduction in the state sales tax on food, corporate tax breaks and residential property tax relief.
The policies assembled into Senate Bill 169 add up to $1.3 billion in decreased state tax collections over the next three years, with more than half of the cost associated with the flat tax. The bill eliminates the sales tax on food at the start of next year.
“To me, it’s always a priority to get it back to taxpayers instead of growing government, and that’s what this bill does, and it does it very nicely,” said Caryn Tyson, a Parker Republican who chairs the Senate tax committee. “It considers everybody, from low income tax to everybody.”
Legislators worked past 4 a.m. to finalize a long list of last-minute deals before taking a three-week break. They will return at the end of April to attempt an override of any legislation vetoed by Gov. Laura Kelly, and to put the final touches on state spending and other policy ideas.
The Democratic governor has indicated she would veto an expensive flat tax plan. Lawmakers have debated various proposals this year that would replace a three-tier system — depending on income level, Kansans currently pay 3.1%, 5.25% or 5.7% — with a single rate. The new deal installs a 5.15% rate to all income after $6,150 for an individual or $12,300 for a married couple.
The Department of Revenue estimated the new rate would cost the state about $330 million annually.
House Minority Leader Vic Miller, a Topeka Democrat, said he previously voted in favor of a tax plan that contained a 5.25% flat tax, even though the governor asked him not to.
“I thought it was likely to be the best deal we were going to get, and I think I’m right,” Miller said.
The earlier plan also included more property tax relief and other measurers that were changed during negotiations between the House and Senate.
Rep. Tom Sawyer, a Wichita Democrat, said the lowering of the proposed flat tax rate adds up to $80 million in annual revenue.
“That $80 million difference? All of that additional cost goes to higher income,” Sawyer said. “Every single penny of that goes to higher income taxpayers.”
Sawyer said other changes in the bill also benefit the wealthiest Kansans.
Rep. Adam Smith, a Weskan Republican who chairs the House Taxation Committee, said Sawyer’s analysis was accurate.
“I’m not going to try to get up here and persuade you differently,” Smith said. “… If you study the numbers, if you look at the way that plays out, it does benefit primarily the upper incomes.”
The House passed the bill on an 85-35 vote that fell along party lines. The Senate, which debated the bill after 2 a.m., passed the package on a 24-13 vote with two Republicans joining Democrats in opposition and three Republicans absent. The totals indicate veto-proof support from the GOP supermajority.
Under the tax package, revenues are projected to decline by $302.7 million in the fiscal year that starts in July. The following fiscal year, the revenue loss is $569.3 million, followed by $480.8 million in fiscal year 2026.
Sen. Tom Holland, a Baldwin City Democrat, said the bill “hearkens back to the good ol’ Sam days,” a reference to former Gov. Sam Brownback and the so-called “tax experiment” the Legislature passed in 2012. The policy cratered state revenues before it was largely overturned in 2017.
As Holland put it, “it was a very bad scene.”
Holland objected to creating a flat tax rate where “the vast majority” of savings go to people making more than $100,000 per year. And he objected to a claim by Tyson that putting money back into people’s pockets would actually generate more tax dollars.
“This is the same bill of goods that was sold during 2012 when we went down the Brownback path,” Holland said. “As much as people wanted to talk about the expected multiplier effect of additional dollars rolling through the economy, it never did.”
Tyson dusted off a debunked narrative that blamed the failure of Brownback’s tax cuts on an economic downturn.
“It was the perfect storm,” Tyson said. “You had tax cuts, you had increased spending, and then we took a hit in oil and gas, aviation, and agriculture. So that sound byte is not reality. It is a major red herring. This is a very thoughtful process.”
Among other provisions, the bill accelerates the elimination of the state sales tax on food by wiping it out entirely on Jan. 1, 2024, instead of gradually phasing out the tax a year later.
Another provision accelerates planned reductions in the corporate income tax rate from 4% to 3%. Those reductions were attached to legislation authorizing economic development deals for Panasonic to build an electric vehicle battery plant in De Soto and Integra Technologies to expand computer chip manufacturing in the Wichita area. The change is projected to reduce state revenues by about $40 million annually.
Banks and other financial institutions would get a tax cut amounting to about $7 million annually.
The bill also increases the amount of residential property value exempt from the state 20 mill levy from $40,000 to $60,000. The mill levy is used to help fund K-12 public schools.
The increased exemption amounts to a $40 million annual property tax cut.
The standard deduction for individual income taxes would increase through an inflation adjustment every year. The change will reduce state revenues by $15 million in fiscal year 2025 and $25 million the following year.
An exemption on Social Security benefits will increase from $75,000 to $100,000 in income, reducing state revenues by about $22 million annually. The exemption will increase by $5,000 every year.
The House also passed by 76-43 vote an additional tax package contained in Senate Bill 8, which bundles numerous pieces of legislation dealing with property, sales and income taxes. Those changes would total about $80 million a year in revenue loss for the state. The Senate didn’t take action on the bill before adjourning around 4:20 a.m.
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