With the house adjourned, the State of Kansas looked to the Senate to finally set the bar for the tax policies for the state of Kansas. Today, in a 21-17 vote, the slimmest of possible margins, the Senate passed HB2109, the comprehensive tax plan.
The tax plan in question includes these components:
1) Taxing guaranteed payments made by the businesses that are tax exempt
2) Sales tax rate increase to 6.55%; decrease to 4.95% in the sales tax on food starting July 1, 2016
3) Increase cigarette tax 50 cents from $.79 to $1.29 per pack; tax e-cigarettes starting July 1, 2016
4) Only allow Kansas itemized deductions of 100% on charitable contributions and 50% deduction on property taxes and mortgage interest
5) The tax amnesty program for penalties and interest for delinquent taxes paid in full between Sept. 1, 2015 and Oct. 15, 2015
6) A requirement that individuals have a social security number for the entire tax year in which an individual income tax credit is claimed
7) Fix for student voucher program, providing businesses a 100% tax credit on scholarships offered to students who attend a private school, with a statewide cap of $10M, and an individual cap of $8,000
8) Property Tax Lid (LaTurner amendment) requiring communities take a vote on tax changes greater than inflation on local property tax.
While House Republicans had previously characterized such efforts as "one of the largest tax increases possible" Senate members were effectively wooed by longterm promises.
The tax deal included options for 2016 Fiscal Year (July, 2016) for lowering the tax on food, a commission on non-for-profits paying sales tax, as well as options for reductions in 2018 and 2020.
Sen. Dennis Pyle (R-Hiawatha) talked about his re-election and noted: "I did not come here to raise taxes", arguing that the promise of potential cuts in 2018 and 2020 were "2 and 3 election cycles away". Senator Pyle's key point was to urge other members to vote "NO" as he believed they were voting for "birds in a bush" which would never come to fruition.
Outside advocacy groups argued the same, noting that these future tax cuts would easily be eliminated in future tax bills, as quickly as next year.
Amongst the chief concerns for those doing the budget revolved around the structure of the tax plan in general. The plan as presented received $30M from Guaranteed Payments, a program which House Republicans were informed on Tuesday, June 2 could be "easily avoided" by restructuring LLC business status. A quick check with an accountant verified this assessment, that many businesses can completely avoid this for a small fee and around 1 hour of work.
Also included within the tax plan are "amnesty" returns. The state of Kansas will offer an Amnesty window to get non-payers to file their taxes and pay up on debt, removing penalties in an effort to get people to pay. It is uncertain if these traditional non-payers will suddenly come through with the estimated funds.
These items reflect a significant portion of the state plan for a budget in Fiscal Year 2015, but as a member noted: there is also the expectation of continued economic growth - and we can't stop that.
"This is fantasy land money" a lobbyist assured me; "It is almost a guarantee we miss projections early and often." Noting that their were several issues. Amongst them:
* Significant increase in cigarette tax would simply drive smokers to cross the state line in Johnson County and send others to Indian reservations.
* Significant increases in sales tax - including food through 2016 - would also have individual cross state line and may lower in state spending, hurting revenue targets. This is a chief complaint of many Chamber of Commerce members in attendance.
* Tax Amnesty is unlikely to pull in expected revenue.
More pressing, though is that Senators and House members dislike the idea of being last on the record. The senate, unable to pass the bill and sitting at 20-17 found themselves one vote short of a passing member until Julia Lynn (R-Olathe/Gardner) came into the body to cast an AYE vote putting it over the top; but it was Mike O'Donnell (R-Wichita) who helped save her from being the vote that put the bill over the top, changing his "YES" to a "NO" and eventually back to a "YES" in order to be the last and deciding vote for a significant tax increase.
Mike O'Donnell, who was openly supported by AfP and Chamber of Commerce in 2012 ran on a campaign of "No New Taxes, Period". Considered an at risk seat by some Republicans, it was easier to make Mike O'Donnell the target of outrage as the final vote than it was to put others at risk and having Mike O'Donnell go last certainly accomplished that feat.
It is unclear if Mike O'Donnell realized the impact of him being the vote that put the bill over the top, but it was not lost on outsiders.
Now, the tax plan moves to the house. Speaking with reporters earlier, Representative Kleeb indicated it was 'Unlikely' this bill could pass the house, as it contains measures specifically unpopular in that body: student vouchers, the property tax lid, and a refusal to take on business taxes.
However, as we left the capital many Republicans were confident they could reach as many as 69 votes in the house, pointing out that no one wanted to be on the wrong side of the $470M question, and everyone was eager to go home.
The house comes in at 2PM tomorrow in Topeka and will begin debate to concur with the senate. Upon vote the measure will be forwarded to the Governor, and Kansas will close the legislative year.