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Kansas Senate passes flat-rate income tax plan, a massive package of tax cuts

Kansas senators approved a massive roundup of nearly $3 billion in tax cuts late Thursday, but it’s unclear how many will eventually become law since they will likely be relegated to negotiations among a select group of lawmakers.

Senate Speaker Ty Masterson R-Andover predicted a “tax-a-palooza” and that many tax proposals would be added to the handful of bills allowed to be discussed.

“Because there’s so much money in the final balance and everyone has an idea for a tax break, it’s probably going to look like ‘The Oprah Winfrey Show’ when everyone gets a car, so it’ll be interesting to see what happens,” he said last week. week.

The tax cuts approved by the Senate total about $2.96 billion over three fiscal years.

The single largest tax cut comes from a flat 4.75% personal income tax, though the hit to state revenues is substantially smaller than a separate plan proposed by the Kansas House.

Moreover:At $1.5 billion, the Kansas Chamber’s flat-rate tax plan would be a bigger tax cut than Brownback’s

Will fiscal policy be set in the conference committee?

While the Senate has passed numerous tax cuts, the House hasn’t discussed or approved much in the way of substantial tax bills during the legislature’s busiest week so far this session.

Fiscal policy so far is shaping up to be normal in the Statehouse, where the Senate passes a glut of tax cuts while the House doesn’t pass tax cuts until the end of the session.

The final tax policy is typically negotiated through a six-person conference committee that produces packages that the rest of the legislature cannot change. The effect is that lawmakers have to vote yes or no on the whole package.

Republicans on the House rules committee last month blocked efforts by Democrats, led by D-Lawrence Dennis “Boog” Highberger, to limit the number of bills that can be bundled into one.

“As you may recall, last year we saw a tax bill with 29 underlying bills,” Highberger said. “I mean no disrespect to the chair, but I think there are too many.”

“Absolutely no disrespect,” said Rep. Adam Smith, R-Weskan and House Tax Committee chairman. “It would make my life a lot easier if we put that there. But I’ll probably have to object because it goes back to my initial discussion on appropriations. Sometimes fiscal policy has quite different ideas between the House and the Senate and that ability to negotiate some of the pieces put a point is important. I’ll do my best not to abuse it like I was last year.”

Smith told reporters he would prefer not to bundle tax bills into packages this year, but there is talk of doing exactly that.

At least some senators expect that to be the case again this year.

Sen. Tom Holland, D-Baldwin City and Senate top Democrat on tax policy, has predicted that additional tax policies will eventually be curtailed on the conference committee.

“If we’re going to do it like a Christmas tree and find a billion dollars in games and fun, that’s fine, we’ll lose everything at the end of the session,” Holland said. “Because this is going to basically go into committee and nobody is going to cut it here on the floor and it’s never going to go beyond this chamber, and then it’s going to die at the end of the session.”

The legislature’s only registered independent, Sen. Dennis Pyle, I-Hiawatha, also denounced the political process on tax cuts.

“My advice to everyone is to wind it up today and see if it flies, because it won’t fly,” Pyle said as Senators added more tax cuts into a bill. “You’ll load it with all your amendments. They’re good votes. You might as well vote them. They’re good talking points for a one-party system.”

When Sen. Marci Francisco D-Lawrence offered an amendment to reduce the additional tax cuts, Masterson and other Republicans framed it as a comparative tax increase.

The flat tax bill passes the Kansas Senate

Moving the state’s progressive income tax system to a flat tax was a top priority of GOP leadership this session, arguing that it is both fairer and would attract business.

Kansas currently has three tax brackets for personal income tax.

All start with a 3.1% tax on the first $15,000 for individuals and $30,000 for married couples filing jointly. Thereafter, the tax increases to 5.2% on any income between $15,000 and $30,000 for individuals and between $30,000 and $60,000 for couples. The tax then increases to 5.7% for any income over $30,000 for individuals and $60,000 for couples.

The Senate plan in SB 169 would tax all personal income at 4.75%, with exemptions on the first $5,225 for individuals and $10,450 for couples. It passed 22-17, meaning he wouldn’t have enough support for a veto override.

“To me, this is the middle ground,” said Sen. Caryn Tyson, R-Parker and the Senate’s top Republican on tax policy, who introduced the bill. “Makes sense. It’s good logic.”

The plan would cost $170.4 million in FY2024, $568.5 million in FY25 and $574.2 million in FY26.

To help pay a flat tax, Masterson proposed raising the food sales tax on all but healthy foods.

But the Senate unexpectedly amended SB 248 to exempt all state and local taxes on food sales, effectively accelerating the planned food sales tax cut. It’s not clear exactly what the extra cost of the bill would be, but Sen. Mike Petersen, R-Wichita, said an analysis puts it at a one-time cost of $115.5 million.

Democratic opposition has focused on fears that a flat tax could amount to a return to Governor Sam Brownback’s failed tax experiment. Even some Republicans were of this opinion.

“I think we’ve seen this show over the past decade, and I’m not sure I liked the way it ended,” said Senator John Doll, R-Garden City.

Opponents have also argued that a flat tax is more beneficial to wealthier Kansans. Holland has attempted to reverse course on the bill with an amendment to expand the progressive tax structure.

“The flat tax to me is not just a disaster from the point of view that we can never pay it, the flat tax itself is a disaster because it’s further regressive and only really helps the richest Kansas,” Holland said.

Holland’s proposal would set the tax brackets for individuals at 3% on the first $30,000, 4.5% on income between $30,000 and $60,000, 6% on income between $60,000 and $100,000, 7.3% on income between $100,000 and $500,000 and 9.5% on all income over $500,000. The thresholds would be doubled for married couples filing jointly.

“We have to have a tax policy like this and not bow down to the false idols of the 0% income tax rate, because it’s a false god that we will never reach,” Holland said.

Masterson said a top rate of 9.5% “isn’t even serious,” arguing it would “destroy employers” and make Kansas’ tax policy look more like California.

“It’s getting late, so I’m not sure if discussing something that was pulled out of your rear end at the last minute and thrown on the floor is really influencing a lot of people or winning friends,” Masterson said.

Holland’s amendment ultimately failed.

Smith, the House tax chairman, told reporters he is working on his own version of a flat tax bill to minimize the cost. The Kansas House proposal “isn’t the way to go,” he said, while the Senate version “is a little more functional.” With a 5.15% rate and a few other tweaks, the cost would be about $250 million or $300 million, he said.

The Social Security tax has reduced balloons to expensive bills

Under current law, all taxpayers, regardless of filing status, can subtract the full amount of Social Security benefits from their federal adjusted gross income for Kansas income tax purposes. But the law has a cliff at $75,000, meaning any amount of income from any source over that threshold causes the full amount of Social Security benefits to be subject to state taxes.

Kansas politicians entered the legislative session with a multitude of ideas about how to cut income taxes on Social Security benefits.

“If we want real politics,” Pyle said, the Senate should accept the governor’s proposal.

Democratic Gov. Laura Kelly’s plan to smooth the cliff in SB 56 would cost about $20.5 million in FY2024, $16 million in FY25, and $16.1 million in FY26.

The version that passed the Senate Tax Committee and made it to the floor was SB 33, which will completely exempt all Social Security benefits from state income taxes. This would cost approximately $147.6 million in fiscal year 24, $117.2 million in fiscal year 25, and $120.7 million in fiscal year 26.

An amendment by Sen. Mike Thompson, R-Shawnee eliminates all state income taxes on all other forms of retirement income. This would cost approximately $343.1 million in fiscal year 24, $266.8 million in fiscal year 25, and $269.4 million in fiscal year 26.

Four additional amendments were also added for a total of $41 million in FY24, $47 million in FY25, and $58.3 million in FY26. The bill ultimately passed 36-3.

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