The special Senate committee appointed to handle a potential windfall to the state treasury from federal tax reform opens hearings Tuesday on a bill rewriting Kansas law to deliver $137 million to corporate filers and reduce by $54 million the burden for individuals.
Senate President Susan Wagle, a Wichita Republican, created the select committee and appointed herself chairwoman to move quickly on Senate Bill 22. A preliminary analysis of the bill indicated it would cost the state $191.6 million in the first year before falling to about $115 million annually.
"In Kansas, state law has not allowed Kansas families or businesses to fully benefit from the federal tax reform," Wagle said. "This money belongs to Kansas taxpayers, not government."
The estimate attached to the Senate bill far exceeds the potential cost referenced by legislators since the 2019 session began in mid-January. The price tag likely invites greater scrutiny among lawmakers and lobbyists, and could raise the potential of a veto by Gov. Laura Kelly, who opposes significant overhaul of the tax code at this time.
President Donald Trump signed federal tax reform in 2017, but repercussions won't emerge for Kansans until filing of tax returns for 2018. Corporations want to avoid state taxes on repatriated overseas revenue, bank premiums and interest deductions. In terms of individuals, there is desire to take the new higher federal standardized deduction on federal returns and continue itemizing deductions on state returns. Under current Kansas law, taxpayers can't decouple their federal and state returns.
House and Senate Democrats said it was impossible to know the value of any potential windfall and it would be folly to adopt income tax cuts without a better understanding of how lowering cash reserves fit with the overall budget.
Rep. John Carmichael, D-Wichita, said the Legislature blundered in 2012 with passage of a bill aggressively reducing state income taxes on individuals and owners of limited liability companies. Estimates of the fiscal impact of that law were low and Gov. Sam Brownback's signature legislative achievement was repealed by the 2017 Legislature after years of state revenue shortfalls, budget cuts and heavy borrowing.
A bipartisan contingent of legislators alleged the Brownback administration low-balled value of the 2012 business income tax break by about $200 million annually to avoid criticism of what was supposed to be a small-business jobs package.
"If we want to repeat the same mistakes, this would be the way to do it -- understating the cost of tax breaks for wealthy folks," Carmichael said.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said the legislation touted by Wagle was a "pig in a poke" the depth of any windfall hadn't been documented.
"You don't know for sure what the number is," Hensley said. "It makes absolutely no sense to go down the same path Sam Brownback took us down."
The state has a projected $900 million surplus in the current fiscal year budget ending June 30. Big-ticket items related to school funding, pension fund payments and tax-reform dominate discussion at the Capitol along with speculation about whether Kelly would veto a tax windfall bill.
Wagle scheduled the special tax committee meetings in anticipation the bill would be approved by Thursday.
"Are there votes there to override a veto of any tax cuts?" Hiawatha Sen. Dennis Pyle asked fellow Republicans in a meeting.
"Nobody knows the answer to that," said Senate Majority Leader Jim Denning, R-Overland Park. "We think we have the votes to pass it out of our chamber."
Sen. Carolyn McGinn, a Sedgwick Republican who chairs the chamber's budget committee, said overextending could put the state "under water" in three years.
Reckless decisions about state government spending at this juncture can force tax increases in four or five years, said Sen. Ty Masterson, R-El Dorado.
"I think that's missing in the debate," he said. "It's foolish not to pay your bills when you've got hundreds of millions in the bank. Ty's opinion."