Cheering slimmed-down price tag, Kansas legislators send revised tax cuts to Gov. Laura Kelly

Andrew Bahl
Topeka Capital-Journal
Gov. Laura Kelly will have to decide whether to veto a slimmed-down tax bill to increase the standard deduction. She criticized a similar proposal earlier this year.

Legislators voted Tuesday to send a hotly debated tax bill to the desk of Gov. Laura Kelly, setting up a staring match with the governor over legislation she is likely to oppose.

The push to give residents and businesses a tax break has been lingering all session long, after the Kansas Senate passed in February a sweeping package that would cost over $1 billion in the first three years.

That legislation was deemed too rich for the blood of the Kansas House, which countered with a slimmed-down version to increase the standard deduction and let residents and businesses take advantage of 2017 federal tax cuts championed by former President Donald Trump.

More:Kansas Republicans want to pursue tax cuts. But will it mean issues with funding schools?

Both chambers signed off on the revised bill Tuesday, leaving Kelly with a decision about whether to sign the legislation after opposing similar efforts in the past.

Senate Republicans indicated, however, they were happy with the new $284 million price tag over three years. Multiple members who voted against the proposal in February changed course to support the revised bill, as did multiple Senate Democrats.

"It is significantly smaller than it was prior," said Senate President Ty Masterson, R-Andover. "I think they feel like this is a more palatable (number)."

Democrats, however, maintain it still means the state will find itself in a budget hole.

"The numbers just aren't adding up," said Rep. Kathy Wolfe Moore, D-Kansas City, Kan.

Sen. Caryn Tyson, R-Parker, speaks with Senate President Ty Masterson, R-Andover, while debating a tax bill in February.

Bill aims to help residents reap benefits of federal cuts

The debate brought back echoes of tax cuts pursued under former Gov. Sam Brownback in 2012, which resulted in cuts to state services and didn't provide the economic gains for which supporters had hoped.

The core of this legislation, however, gets at the 2017 federal tax bill, which discouraged residents from itemizing their federal taxes, while some state deductions disappeared. This meant residents paid more in taxes to the state, even while they got a cut on their federal bills.

The bill heading to Kelly's desk would address the issue, allowing Kansans to take advantage of the federal changes, while also reaping the benefits of itemizing on their state returns.

Other elements, however, have engendered significantly more controversy.

Those include a move to carve out provisions of the state tax code from the federal bill. One of those changes would give businesses greater flexibility to bring profits from overseas affiliates on some items, such as intellectual property, back into Kansas without paying taxes on them.

Democrats have framed this as nothing more than a corporate handout and unsuccessfully attempted to remove this provision in the House.

More:Gov. Laura Kelly, Republicans in the Kansas Legislature face off over tax cut proposals

"Are we up here to represent the best interests for large multinational corporations or are we up here to represent the interest of regular Kansans across this state?" Rep. Jerry Stogsdill, D-Prairie Village, said on the House floor.

They also object to the bill at a time when Congress is moving to exempt businesses from paying taxes on federal coronavirus relief loans — even if those loans are forgiven.

That provision, which applies to loans from the Payroll Protection Program, could cost the state $360 million over the next three fiscal years, according to an analysis from the Kansas Department of Revenue.

Governor critical of similar proposals in the past

The legislation does include elements Kelly might find appealing.

Chief among those is an increase to the standard deduction, which would rise to $3,500 for single filers and $8,000 for couples filing jointly. Democrats have long pushed for such a move, arguing it will help middle and low-income Kansans.

And the legislation addresses a longstanding gap in the tax code where out-of-state merchants, such as Amazon or eBay, that conduct a transaction on behalf of a third-party vendor do not have to pay sales tax, something the governor has long pushed legislators to do.

More:Republicans again want a tax overhaul. COVID-19 gave them a new sense of urgency.

A spokesperson for Kelly did not say whether she would veto the bill, but the governor slammed a similar proposal earlier this year as “irresponsible." She vetoed a tax bill with many of the same provisions in 2019.

The House vote fell three votes shy of being able to override a potential veto. The Senate managed to reach a veto-proof majority, however.

House Speaker Ron Ryckman, R-Olathe, told reporters he was confident his body would step up to overturn any opposition from Kelly.

"We're prepared to defend our taxpayers," Ryckman said.