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Kansas expected to raise taxes to close budget hole but lawmakers aren't settling on details

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TOPEKA, Kansas — Kansas is expected to increase taxes to close a budget shortfall, but the Republicans who control the Legislature don't agree on the outlines of a plan, yet.

Republican Gov. Sam Brownback wants to protect the major income tax cuts he championed in 2012 and 2013 to help stimulate the economy, though he has proposed slowing the pace of future reductions. He's pushing to increase tobacco and alcohol taxes and has said he's open to raising the state's sales tax.

At least a few GOP legislators have suggested the state must rethink a personal income tax break for business owners, prompting a group representing small businesses to run a radio ad campaign to counter the idea. Lawmakers also could consider raising the state's gasoline tax.

The projected budget shortfall for the fiscal year beginning July 1 ballooned to about $800 million after state officials and university economists this month issued new, more pessimistic revenue projections. Legislative researchers say lawmakers have identified spending cuts and other proposals for narrowing the gap to $422 million.

Legislators return from their annual spring break April 29 to wrap up business for the year, and the state constitution requires them to balance the budget. They'll be finishing a detailed spending blueprint for state government while drafting a plan for raising revenues.

"It certainly has a lot of moving pieces," said Republican Sen. Jim Denning, of Overland Park, who's involved in both tax debates and drafting the final version of the next budget.

Brownback's long-stated goal is phasing out income taxes, seeing it as a "pro-growth" policy. The state reduced its top personal income tax rate by 29 percent and exempted 281,000 business owners and 53,000 farmers altogether. The governor calls the latter policy a "small business accelerator."

The governor and his top aides have said increasing tobacco, alcohol and sales taxes to close the budget shortfall is acceptable because it's part of a long-term shift toward taxing "consumption" instead of "productivity." Brownback said the state still would be phasing out income taxes.

"What you try to do in legislating — or I think in this job as well — is propose a direction and, then, anything that moves you toward that direction, you support," Brownback said during a recent interview. "Anything that moves you away from that direction, you oppose."

His proposals would nearly triple the tax on a package of cigarettes, to $2.29 from 79 cents, and raise the tax paid by consumers on packaged liquor to 12 percent from 8 percent.

Denning said the state could raise $75 million during the next fiscal year by raising the sales tax to 6.3 percent from its current 6.15 percent. He said there's some interest in increasing the state's gasoline tax by 5 cents a gallon, to 29 cents.

He also said the law exempting business owners and farmers from income taxes is flawed, arguing that it went further than ensuring that business profits weren't taxed as income, as opposed to the compensation owners pay themselves. Denning said he and other lawmakers believe narrowing the exemption is fair.

Rep. Jerry Henry, of Atchison, the ranking Democrat on the budget-writing House Appropriations Committee, said: "Some level of consumption taxes and income taxes will come into play."

But the National Federation of Independent Business is running statewide radio ads against any backtracking by lawmakers on past income taxes cuts. The group argues that the tax break for business owners gives the owners of small firms the confidence to expand their businesses.

"If you change this tax policy, you're just showing small businesses that you don't have a safe environment," said Patti Bossert, president of Key Staffing in Topeka, a member of NFIB's national board.

Brownback also is wary of the idea of tinkering with the policy, saying it's aimed at small businesses that collectively are the state's "job-creating machine."

"I'm not very enthusiastic about complicating a situation that has strong clarity and attractiveness to it now to your primary job-creating group," Brownback said.


Online:

Kansas Legislature: http://www.kslegislature.org


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