Wednesday, May 23, 2012

Kansas Gov. Sam Brownback signs income-tax cuts into law

Posted By on Wed, May 23, 2012 at 10:01 AM

Gov. Sam Brownback signed the income tax cut bill into law
  • Gov. Sam Brownback signed the tax-cut bill into law
Kansas is headed for a reckoning. On Tuesday, Gov. Sam Brownback signed a bill into law cutting income tax that would decrease the individual tax rate for those making more than $30,000 per year from 6.45 percent to 4.9 percent. Under the new tax-cut plan, married couples will pay 3 percent on the first $30,000 they earned and 4.9 percent on income above that. Single head-of-household filers' standard deduction will rise from $4,500 to $9,000 (the standard deduction for married couples increases from $6,000 to $9,000). The law also eliminates income taxes on non-wage income for limited liability companies, subchapter S corporations, and sole proprietorships.

The law doesn't include what Brownback termed a series of "pay fors." He had proposed sales-tax increases, elimination of the exemption on mortgage interest and the earned-income credit. Those "pay fors" were left on the floor of the Kansas Legislature. And now, according to the Kansas Legislative Research Department, Kansas will have an $800 million reduction in the revenue it collects in 2014. To put that in perspective, that's 12.8 percent of projected revenues.

Supporters of the plan believe that cutting the income-tax rate will grow the economy and spur additional tax revenue organically. Brownback contends that the tax cuts will save Kansans $1.5 billion over the next two years and help create 23,000 jobs. Critics suggest that the gap can be covered only by drastic cuts in education and social services. The KLRD predicts that the cuts could cost the state $2.5 billion in five years.

Kansas is constitutionally barred from deficit spending. So the only two avenues for negotiating a reduction in revenue are to increase taxes or cut spending. The former has loudly been declared as a political non-starter, which only leaves the latter as an option. The 6.3 percent statewide sales tax is set to reduce by 0.6 percent in July 2013. Brownback had pushed earlier this year to keep that sales tax at the current level - one of the "pay fors" he envisioned.

The formula for covering the expected reduction in revenue has yet to be determined, but one is going to be needed. The bill is coming due; it's now just a question of who's going to be stuck paying for it.
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