The Kansas Senate embraced a controversial bill Wednesday helping corporations and individuals avoid nearly $190 million in state taxes linked to realignment of the federal tax code.
The bill championed by Senate Republican leadership would allow individuals to take an elevated standard deduction on federal returns while itemizing on state returns. Corporations would immediately benefit by sidestepping at least $137 million in state taxes, while individual filers would benefit by avoiding about $50 million in state taxes.
“If we don’t pass this bill, Kansans will go through another tax increase and the economy will suffer,” said Senate President Susan Wagle, R-Wichita. “It’s very important we pass this early in session so people have tax certainty. I think it fits right with the Make America Great program.”
The federal tax reform law causing the ruckus was signed in 2017 by President Donald Trump. In 2018, the Legislature failed to reach agreement on how to alter Kansas law to avoid a backlash against state taxpayers. That pushed the issue to the 2019 session of the Legislature and Gov. Laura Kelly. Republican and Democratic senators speculated Kelly would veto the bill if it cleared the Senate and House.
Kelly, a Democrat, said before the Senate debate that the bill crafted by a special committee led by Wagle reflected the "irresponsible" tax-cut legislation signed seven years ago by then-Gov. Sam Brownback. That 2012 tax overhaul touted by Brownback led to dramatic state revenue shortfalls and prolonged budget problems before the 2017 Legislature repealed much of the GOP governor's tax initiative.
"I can't imagine why anybody who was here in 2012 and lived through the Brownback tax cuts and the 'experiment' would ever consider voting for that bill," Kelly said. "In the last month, my administration has offered clear direction and priorities for the future of Kansas."
She said the Legislature should first address a Kansas Supreme Court order on funding of K-12 public schools, which could require infusion of about $90 million annually into state aid to education.
Senate Minority Leader Anthony Hensley, D-Topeka, said he wouldn't be surprised if Kelly vetoed the tax legislation.
"This bill is not restraint," Hensley said. "I think we’re making a very big mistake.”
Senate Majority Leader Jim Denning, R-Overland Park, said a veto by Kelly, if not overridden by two-thirds majorities in the House and Senate, would deny Kansas taxpayers the ability to take proper advantage of federal adjustments in tax law.
"Senate Bill 22 is not a tax cut," he said. "The provisions of Senate Bill 22 avoid an unintended tax increase to middle-class individuals who normally itemize on their tax returns."
There is controversy about how much windfall revenue would land in the Kansas treasury, leading some lawmakers to support a delay in reform of the tax code.
Sen. Tom Holland, D-Baldwin City, proposed the bill be referred back to a Senate committee for more work, but his idea was rejected.
An amendment offered by Sen. Dennis Pyle, R-Hiawatha, to exempt Social Security benefits paid to Kansans from the state income tax was rejected. It would result in an $87 million annual reduction in state tax revenue, he said.
“We’ve had some talk on the floor about corporation migration," Pyle said. "What about retirees leaving this state because we tax Social Security benefits? Retirees are leaving and they’re taking their income to another state.”