Kansas lawmakers building smaller tax cuts plan to ease Gov. Laura Kelly’s cost concerns

Kansas lawmakers are preparing a scaled-back tax cuts package in an effort to win over Gov. Laura Kelly, who vetoed previous proposals over their size.

The Legislature will convene in a special session on Tuesday to pass a new tax cuts proposal after the regular session ended this spring with the Democratic governor at odds with a bipartisan coalition. Less than a week before the session begins, the broad contours of the package are beginning to emerge in interviews and public comments by lawmakers.

While all sides want tax cuts, Kelly has said their annual cost shouldn’t exceed roughly $425 million. Because of previously passed tax reductions, lawmakers believe they need to limit a package to about $375 million to satisfy the governor.

Top lawmakers in the House and Senate have developed a plan that includes “a fairly significant cut” to the cost, said Rep. Adam Smith, a Weskan Republican who chairs the House Tax Committee.

“We’re really trying to work with the governor because I think everybody wants to get in there, get something passed that the governor will sign. We don’t want to be back for special session after special session,” Smith said.

Top Republicans and Kelly’s office both say they have been engaged in positive discussions. House Speaker Dan Hawkins, a Wichita Republican, told KCMO Talk Radio this week that he and Senate President Ty Masterson, an Andover Republican, have been meeting with the governor’s staff, adding that “the governor wants a deal, too.”

Kelly spokesperson Grace Hoge said in a statement that there “continues to be productive conversations with legislative leaders on responsible tax relief for all Kansans that does not threaten the state’s long-term fiscal stability.”

“We are confident that a deal will be reached ahead of the special session on Tuesday,” Hoge said.

On May 16, Kelly vetoed a plan that would have cost between $462 million and $472 million a year after a first-year cost of $641 million. The plan would have moved Kansas from three state income tax brackets to two, providing many taxpayers with a break in the process.

The plan also contained other less controversial tax changes, including raising the personal exemption allowance for dependents, lowering the statewide mill levy for schools, and accelerating the elimination of the state sales tax on food to July 1, in addition to ending taxes on Social Security income.

Hawkins said lawmakers will offer a new plan that will be based on a two-rate income tax – retaining one of the most significant changes from the vetoed plan. Hawkins said, “we’re stuck on that, that’s where we want to be.” Smith also said the plan included a two-rate income tax.

But the new plan won’t include an accelerated end to the state sales tax on food, Smith said. Instead, the tax will be eliminated in January, which is already scheduled in current law.

Smith said he wasn’t comfortable sharing details of the plan but said he does intend to release more information this week. He anticipated the House Tax Committee would hold hearings on Monday, ahead of the Tuesday start of session.

Masterson on Wednesday said the session’s top priority is tax relief and he also confirmed the plan will include a two-rate structure.

“We anticipate the bill will look a lot like bills we passed previously, including a simplified dual rate system with income, property, and sales tax relief for all Kansans,” Masterson said in a statement. “The final details will be crafted on Monday, and it is our hope the governor will sign the bill.”

Under current Kansas law, the income tax brackets are set at 3.1%, 5.25% and 5.7%, with individuals making over $30,000 a year in taxable income taxed at the top rate.

The vetoed plan would have set the top rate for married couples filing jointly at 5.57% and the bottom rate at 5.2%, with $46,000 serving as the dividing line between the two rates. All other taxpayers would have been taxed at 5.15% in the bottom bracket and 5.55% in the top bracket, with $23,000 dividing the two brackets.

Lawmakers are aiming to hold the session to only a day or two. But if a tax cuts agreement is reached, Hawkins and Masterson have also signaled they want to take up legislation to attract the Kansas City Chiefs and Royals to Kansas.

The top Republicans are backing a plan to expand the state’s Sales Tax and Revenue – STAR – bonds program in a bid to win over one or both teams. Under the plan, Kansas would be authorized to issue potentially hundreds of millions of dollars to finance a new stadium.

The bond would be backed solely by future sales tax revenue from the stadium and surrounding development. Kansas may also issue additional bonds backed by sports wagering and lottery revenues.

While lawmakers are virtually unanimous in wanting to pass some form of tax relief, the STAR bonds plan is much more controversial. Lawmakers are also divided on whether the special session is the appropriate time to advance the idea.

Sen. Caryn Tyson, a Parker Republican who chairs the Senate Tax Committee, said her focus is on taxes.

“To me, this special session should be about tax and tax cuts,” Tyson said. “If the governor signs those into law, then we can petition for a special session and deal with the STAR bonds project. To put both in one session is disappointing. Kansans deserve tax cuts and we need to make that a top priority.”