The Republican-dominated Kansas state legislature rolled back the deep tax cuts it approved seven years ago, overriding Gov. Sam Brownback’s (R) veto and repudiating the conservative tax-cutting philosophy it represented.
The vote by lawmakers in Kansas followed years of frustration about the damaging impacts of tax cuts on Kansas’s state government. With huge Republican majorities, Brownback had pursued deep reductions in tax rates early in his administration, calling them a “real live experiment” in conservative governance, and tried to veto the legislation rolling them back.
The tax reductions in Kansas had not delivered the economic growth Brownback had promised but caused massive holes in the state’s budget and led to unpopular spending cuts in areas such as education spending.
The legislation undoes the essential components of Brownback’s reforms. The governor had reduced the number of brackets for the state’s marginal rates on income from three to two. The legislature will restore the third bracket, increasing taxes on the state’s wealthiest residents from 4.6% to 5.2% this year and 5.7% next year.
Marginal rates on less affluent Kansan households will increase as well, from 4.6% to 5.25% by next year for married taxpayers making between $30,000 and $60,000 a year and from 2.7% to 3.1% for those earning less than that.
The legislation also scraps a plan to bring those rates down even more in future years, one of Brownback’s promises to conservative supporters.
Further, the legislature eliminated a cut Brownback had put in place to help small businesses. Analysts said that the provision had become a loophole, as many Kansans were able to avoid paying taxes entirely by pretending to be small businesses.
Initially, the state forecast that about 200,000 small businesses would take advantage of the break. As it turned out, about 330,000 entities would use Kansas’s new rule. That discrepancy suggests that tens of thousands of workers claimed that their incomes were from businesses they owned rather than from salaries.
State budget analysts project the tax increase will raise an additional $600 million annually. The legislature began this year’s session with the government in a deficit of $350 million, leaving lawmakers mulling more budget cuts. They have drained the state’s reserves of cash, diverting money meant for roads, delaying payments to pension funds and, in essence, forcing local agencies to make loans to the state government. Two bond rating agencies have downgraded Kansas due to its fiscal problems, and the state’s education system and other crucial services have suffered as the state struggled to afford to invest in people and communities.
The budget gaps are driven both by conservative legislators’ tax reductions and by broad changes in the economy. State sales taxes no longer produce as much revenue, due both to online sales and to the growing share of services, which are rarely taxed, in the U.S. economy.
Info: https://goo.gl/0go3g8 (report).