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Effects of Kansas' business tax break broader than estimated; intensifies budget debate

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TOPEKA, Kansas — Kansas officials acknowledge that a tax exemption championed as an economic stimulus by Republican Gov. Sam Brownback has helped 89,000 more business owners than previously anticipated, but the state's revenue chief said Tuesday the policy shouldn't be blamed for the state's budget problems.

Revenue Secretary Nick Jordan said the exemption — the most dramatic part of personal income tax cuts enacted at Brownback's urging in 2012 and 2013 — is boosting the state's economy.

But new figures from the Department of Revenue about who's benefited from the policy have intensified a legislative debate over whether the exemption should be modified. Kansas faces a projected shortfall of nearly $600 million in its budget for the fiscal year beginning July 1.

Starting in 2013 in a bid to help small businesses, people who reported their business profits on their personal income taxes didn't have to pay any taxes on those earnings. The department predicted 192,000 business owners would benefit, but its latest figures show nearly 281,000 business owners paid no income taxes in 2013 — 46 percent more than estimated. Also, 53,000 farmers did not pay income taxes, according to the department.

"This is a policy that's going to grow the very backbone of your economy, and by growing these numbers, we're saying, 'Hey, guess what? We did it,'" Jordan said during an interview.

The new figures were first reported last week by The Wichita Eagle after months of suggestions from Brownback's opponents that the business-income exemption was far more lucrative than advertised.

"I always thought that bank robbery was illegal in Kansas," said Senate Minority Leader Anthony Hensley, a Topeka Democrat. "This is a run on the bank."

The department's new estimate for the 2013 cost of the exemption alone, $207 million, is 29 percent higher than its previous estimate. Department of Revenue officials also said nearly 8,700 beneficiaries in 2013 were first-time income tax filers, suggesting new business activity.

During the fiscal year ending in June 2014, personal income tax collections dropped by $713 million, or 24 percent, compared with the previous fiscal year. Collections for the current fiscal year, through January, are 6 percent lower still.

Department officials reiterated Tuesday that uncertainty about federal tax laws is to blame for the larger-than-expected drop.

"I am getting tired of this," Jordan said in response to claims that the state's tax exemption is responsible for its budget problems.

Revenue officials said they used federal income tax data from 2009 for their original estimates because it was the latest available when the Legislature was considering the exemption. But it reflected the economic downturn associated with the Great Recession, when many business owners didn't have profits, and also didn't include farmers.


Online:

Kansas Department of Revenue: http://www.ksrevenue.org/

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


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