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Analysis: GOP lawmakers pursue revision of Kansas business break, despite Brownback stance

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TOPEKA, Kansas — Top Republican legislators in Kansas appear increasingly ready to reconsider a business tax break that's been a cherished economic policy for GOP Gov. Sam Brownback, possibly making it more difficult to close a projected budget shortfall.

Brownback is clear that he wants to preserve an exemption from personal income taxes for 281,000 business owners and 53,000 farmers. He calls the policy, enacted in 2012 as part of a larger package of income tax cuts, the "small business accelerator" and describes it as a catalyst for job growth.

But Republican allies who championed the same tax break three years ago said the GOP-dominated Legislature will seriously consider narrowing it as a budget-balancing move. Several suggested the exemption was broader than they'd intended and raised the same questions about whether the policy is fair to working-class families that Democrats have long asked.

GOP legislators involved in drafting budget and tax proposals acknowledged that they'll have to push Brownback into accepting changes.

"As with any business plan, you may need to make adjustments along the way," said House Taxation Committee Marvin Kleeb, an Overland Park Republican. "That's how I'm looking at this."

Brownback successfully pushed for personal income tax cuts in 2012 and 2013 in an effort to boost the economy and start phasing out income taxes. The state has cut its top personal income tax rate by 29 percent.

Budget problems followed. The projected shortfall for the fiscal year beginning July 1 is about $800 million, or 12.4 percent of the $6.5 billion in spending that lawmakers expect to finance with the state's general tax revenues. Legislative researchers say lawmakers already have identified ways to narrow the gap to $422 million.

The governor proposed slowing down future income tax cuts and raising alcohol and tobacco taxes. He later said he's open to increasing the state's sales tax, and he recently suggested eliminating most income tax deductions.

As for revisiting the business tax break, he said, "I don't like that model."

Brownback said he'll be meeting with legislators about alternatives and, "These are long negotiations."

He's got the backing of organizations that are normally influential with GOP lawmakers, including the anti-tax groups Club for Growth and Americans for Prosperity and the National Federation of Independent Business and Kansas Chamber of Commerce. The NFIB has run statewide radio ads, and Club for Growth did automated telephone calls to several thousand business owners.

PHOTO: FILE - In this April 28, 2015 file photo, J.G. Scott, center, the chief fiscal analyst for the Kansas Legislative Research Department, confers with Republican state Sens. Jim Denning, left, of Overland Park, and Ty Masterson, right, of Andover, during a committee briefing on budget issues at the Statehouse in Topeka, Kan. Denning wants legislators to balance the budget by narrowing an income tax exemption for business owners enacted in 2012. (AP Photo/John Hanna, File)
FILE - In this April 28, 2015 file photo, J.G. Scott, center, the chief fiscal analyst for the Kansas Legislative Research Department, confers with Republican state Sens. Jim Denning, left, of Overland Park, and Ty Masterson, right, of Andover, during a committee briefing on budget issues at the Statehouse in Topeka, Kan. Denning wants legislators to balance the budget by narrowing an income tax exemption for business owners enacted in 2012. (AP Photo/John Hanna, File)

Club for Growth also hired Mark Dugan, the governor's former campaign manager, and David Kensinger, his former chief of staff, as lobbyists. The Kansas Chamber's CEO is former state House Speaker Mike O'Neal, and one of its vice presidents, Christie Kriegshauser, is the announced successor to current House Speaker Ray Merrick's departing chief of staff.

Jeff Glendening, Americans for Prosperity's state director, said the talk about revising the business tax break is only a sign that the debate is in its early stages. He's confident the push is dying.

But interviews with top GOP legislators over the past week left the opposite impression.

Senate President Susan Wagle, a Wichita Republican who owes her position to a conservative GOP sweep in 2012 elections, said she's been hearing lots of questions from constituents about whether the tax break is fair. She said they wonder why a doctor or insurance agency owner doesn't pay income taxes, but the office secretary does.

Kleeb said he and other legislators want to consider re-taxing "passive" income such as rents and royalties.

Sen. Jim Denning, an Overland Park Republican, who's helping to draft the final version of the next state budget, said he's working on a plan to reimpose the state's personal income tax on the first $118,500 of a business owner's profits, in line with federal tax laws that treat that amount as salary. He believes such a move could raise $160 million a year.

"It's not a tax increase," Denning said. "It's just a closure of an exemption-slash-loophole."

The debate has put some Brownback allies on the defensive. Senate tax committee Chairman Les Donovan, a Wichita Republican, argued that questions about why lawmakers are rethinking the business tax break are driven by a desire to push supporters of the policy into saying they made a mistake in 2012.

"I'm not going to say that," Donovan said. "We're going to look at a lot of things — I've got a long, long list."


Online:

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


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