TOPEKA, Kan. — Republican legislators in Kansas expect to push forward this week with an income tax relief proposal in defiance of Democratic Gov. Laura Kelly’s call for lawmakers to avoid adjusting state tax laws this year.
A Senate committee is set to open hearings Tuesday and could vote Thursday on a bill aimed at preventing individuals and corporations from paying more to the state because of changes in federal income tax laws at the end of 2017. Top Republicans in the GOP-dominated Legislature have made tax relief a priority.
Republicans argue Kansas is receiving an unanticipated revenue “windfall” because its income tax laws are tied to the federal tax code. While the changes championed by President Donald Trump cut rates, they also included provisions that could keep many residents from claiming itemized deductions on their state tax forms.
GOP leaders also are pushing to have their proposed changes apply retroactively, so people benefit when filing their taxes this spring for 2018. The Kansas Department of Revenue told legislators Monday that taxpayers would save $192 million during the fiscal year that begins July 1.
“Whose money is it? It’s the taxpayers’ money,” said Sen. Larry Alley, a Winfield Republican and member of the special Senate committee reviewing the legislation. “Let the individuals and corporations get that money back that was intended for them.”
The GOP’s push sets up a political confrontation with Kelly, whose top priorities are increasing spending on public schools and expanding the state’s Medicaid health coverage for the needy.
Under the Senate proposal, the state’s revenue loss — and taxpayers’ savings — would be far higher during the next budget year because of refunds of taxes already paid for 2018. The bill would reduce state revenues by $113 million in the fiscal year that begins in July 2020.
“The question is: Can we afford it at this point in time?” said Senate Minority Leader Anthony Hensley, a Topeka Democrat. “You have to put it in the context of the entire budget.”
Kelly won the governor’s race last year by running against former GOP Gov. Sam Brownback’s unpopular fiscal policies. Brownback successfully pushed legislators to slash state income taxes in 2012 and 2013, and most of them were reversed in 2017 after persistent budget woes.
State officials have struggled to calculate the effects of the federal tax changes. Last summer, legislative researchers projected $146 million in additional revenues during the next budget year, but Democrats have been skeptical.
“This is not the time to be making any substantial changes in our tax structure,” Kelly said during a news conference last week. “We have no idea if there’s a windfall.”
But Kelly also has consistently refused to say whether she would veto a tax relief bill. Spokeswoman Ashley All said Monday only that Kelly would review any bill to “determine if it’s in the best interests of the state.”
The bill before the Senate committee would allow Kansas taxpayers to claim itemized deductions on their state income tax forms even if they don’t itemize on their federal tax forms.
The federal standard deductions have increased, discouraging taxpayers from itemizing. But the state’s standard deductions aren’t changing — a hit for some taxpayers who formerly itemized on their federal forms. Their savings would average about $60 million a year.
The bill also would make changes to keep Kansas from taxing foreign income earned by individuals and corporation — saving them $137 million during the next budget year, when they could claim refunds on their 2018 taxes, but dropping to less $60 million a year after that. Republicans argue that without such changes, businesses would be encouraged to leave the state for a more favorable tax climate elsewhere.
“I have a sense of urgency,” said Senate President Susan Wagle, a Wichita Republican and chairwoman of the special tax committee.
She noted that individuals are preparing to file returns and added, “Businesses certainly need certainty.”