In KS governor’s race, Schmidt proposes ending state income tax on retirement benefits

·4 min read
Thad Allton/For the Kansas Reflector

Kansas Attorney General Derek Schmidt, the likely Republican nominee for governor, is proposing eliminating state income taxes on retirement benefits to encourage older residents to stay in the state.

Schmidt’s campaign on Wednesday released a plan that would end state income taxes on pensions, 401k plans, IRAs, Social Security retirement benefits and other retirement benefits. By the 2025 budget year, the cost to state revenues from the plan would be about $349 million a year, according to campaign estimates.

Only 13 states — Kansas among them — taxed Social Security benefits as of 2021, according to the Tax Foundation.

The plan could prove attractive to retirees, but would require legislative approval. Still, lawmakers have been willing to entertain tax cuts amid massive cash reserves. A revenue forecast released in April projected the state’s budget surplus would swell to $3.1 billion by the end of the current fiscal year on June 30.

Both Schmidt and Democratic Gov. Laura Kelly supported cutting the state sales tax on food this year. Lawmakers approved a plan, which Kelly signed, that phases out the tax over a few years.

Schmidt’s proposal marks a new front in the fight over taxes after Kelly has held a series of ceremonial bill signings around the state to tout the food tax elimination.

“The Schmidt-Sawyer administration is going to focus every single day on growing Kansas, and if we’re going to do that we can’t keep losing retirees at such a high rate to other, more tax-friendly states,” Schmidt said in a statement, referring to running mate Katie Sawyer.

“To every retiree considering leaving Kansas after a lifetime of working and living here, we want you to stay. To every retiree in another state looking to move, come to Kansas. We’re going to give you another reason to remain or return to Kansas by helping you Retire Tax Free.”

Kelly campaign spokesperson Lauren Fitzgerald responded to the plan by linking Schmidt to former Gov. Sam Brownback, a Republican known for his signature income tax cuts that led to severe budget shortfalls.

Schmidt’s campaign was using a “partisan website led by Brownback’s top economic advisor” to mislead Kansans about Kelly’s record, Fitzgerald said in a reference to the Kansas Policy Institute and Michael Austin, a former advisor to Brownback who at one time was on the institute’s staff. Articles by The Sentinel, a website operated by KPI, were cited in Schmidt’s tax proposal.

Austin, who ran for state treasurer in 2021 before suspending his campaign early this year, left KPI in April 2021 and hasn’t worked for the institute since, KPI spokesperson Ellen Hathaway said.

Fitzgerald said Kelly has a “successful record of working with both parties to balance the budget and make life more affordable for seniors by axing the food tax and cutting property taxes.”

“Just like a typical politician, Derek Schmidt will say or do anything during an election year, but his real record shows that he’ll take us back to the Brownback era of fiscal irresponsibility and underfunded schools,” Fitzgerald said.

The Legislature has previously considered elements of Schmidt’s plan. Last year, the Senate voted to add provisions eliminating the tax on Social Security benefits and employer-sponsored retirement plans to a larger tax cut bill.

The amendment was proposed by Sen. Dennis Pyle, a former Republican who is currently campaigning for governor as an independent. The tax elimination ultimately didn’t become law. The bill it had been included ballooned to a $475 million price tag during Senate debate and died in the House.

Schmidt’s campaign cast his plan as a way to aid retirees on fixed incomes who are struggling with rising inflation, which have hit four-decade highs nationally, and as a first step toward growing the state.

Among the statistics the campaign cited to make its case, it pointed to a Kansas Department of Labor report from earlier this month showing the state has recovered about 77% of jobs lost during the pandemic compared to 96% for the country as a whole.

“Our state’s heavy tax burden is one of the significant obstacles to population growth and a significant reason so many Kansas retirees move away, taking with them their lifetime of talent, civic involvement, and savings,” Schmidt said in a statement.

The Star’s Katie Bernard contributed reporting

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