It looks like Koch Industries will get to keep its Kansas tax loophole for now.
For those of you new to the story, we previously covered How Koch Industries Is Responsible for Kansas Budget Woes and that Koch AstroTurf Groups Double Down in Support of Koch Tax Loophole Despite Mounting Opposition. By the time of yesterday’s vote, those supporting a repeal of the “LLC Loophole” included:
- 5 Kansas newspapers (editorials)
- 48 written testimonies on HB2444 (basis for language inserted into SB 63, which was voted on)
- 2 local chambers of commerce
- The conservative, and Koch-funded, Tax Foundation
As we pointed out in our earlier articles, the only groups publicly voicing their support for the “LLC Loophole” were affiliates of Koch Industries, Charles Koch, and/or David Koch:
Prior to voting on the bill, GOP House members had a caucus with reporters in attendance. Among the comments reportedly made:
Rep. Lunn was worried about the “election consequences” of approving a seemingly popular measure. One would think that a democratically elected politician would be more worried about the “election consequences” of not approving a seemingly popular bill. As a point of fact, Koch Industries has made $2,000 of donations to Rep. Lunn’s campaigns (this excludes any affiliated outside groups’ spending), including a $500 donation in 12/2015.
Rep. Kelley also weighed in:
It is worth noting that Koch Industries gave over $5,000 of campaign donations to Rep. Kelley over the years, including a similar $500 donation in 12/2015. She declined to offer any corrections to the media record, and we are proud of our coverage of the Koch Industries tax loophole debate.
Earlier in the caucus, Rep. Hedke read from a single constituent letter in support of the loophole (no word on how many he received opposing the loophole):
Since the letter is not public, the identity of the author cannot be verified, the veracity of his account cannot be challenged, and it remains unclear whether this CPA from Charles Koch’s hometown has any connection to Koch Industries, Charles Koch, and/or David Koch. It is worth noting, however, that Rep. Hedke has received $2,500 in campaign donations from Koch Industries, including a $500 donation in 12/2015.
There also seems to be confusion as to who actually benefits from this loophole. At the GOP caucus, Rep. Suellentrop ($2,000 in donations from Koch Industries, including $500 in 12/2015) made a controversial claim:
This assertion was refuted by actual data during the House floor debate:
Rep. Helgerson went on to say that the Koch Industries tax loophole “was effectively shielding from taxation $3.4 billion of income from the 2,400 wealthiest people in Kansas, those who make over $500,000 a year.” If true, at Kansas’ current 4.6% top tax bracket, that would imply roughly $150 million a year in tax savings to these filers as a result of their paying NO STATE INCOME TAX on their pass-through income. It is unclear how much of this income is flowing to individual or entities associated with Koch Industries.
At the end of the day, it was a strange vote. Some Democrats and moderate Republicans voted against a repeal—arguing that it did not go far enough. A post-mortem attributed to former Kansas Governor John W. Carlin, and posted to his Facebook page, explains the dynamic:
If you’re looking at your legislator and wondering about their vote on the recent bill to restore taxes on LLC’s, it’s important to recognize a few realities when looking at the totality of the situation we’re in. First, this bill was destined to fail. It would not have passed even with the support of every legislator who has a desire to see a real solution to the problem. In fact, it was designed to create further political problems for those legislators, who will already be heading home to face an onslaught of negative attacks from the same special interests that pushed the tax “experiment” in the first place. And finally, even if it had passed, it wouldn't have fixed the entirety of the problem—and would have, in fact, made it harder to address down the road when more revenue would be needed to fill our current budget gap and properly fund state services.
Based on the state of the debate, the “special interests” clearly carry a lot of weight. It is worth calling out the people who were reported as specifically speaking in favor of the loophole, itself, either in the GOP caucus or on the floor; they are listed below, along with how much they received in campaign contributions directly from Koch Industries.
Reported as Speaking in Favor of Loophole in GOP Caucus
Rep. Hedke ($2,500 from Koch Industries, including $500 in 12/2015)
Rep. Lunn ($2,000 from Koch Industries, including $500 in 12/2015)
Rep. Kelley ($5,050 from Koch Industries, including $500 in 12/2015)
Rep. Rhoades ($4,600 from Koch Industries, including $500 in 12/2015)
Rep. Suellentrop ($2,000 from Koch Industries, including $500 in 12/2015)
Rep. Corbet ($2,000 from Koch Industries, including $500 in 12/2015)
Rep. [Randy] Powell ($1,000 from Koch Industries, no donation in 12/2015)
Reported as Speaking in Favor of Loophole on House Floor
Rep. Dove ($2,000 from Koch Industries, including $500 in 12/2015)
