Kansas House unanimously adopts bipartisan bill cutting property, income and sales tax burden

TOPEKA — Kansas House Democrats and Republicans joined forces Wednesday to unanimously approve a bipartisan bill slicing hundreds of millions annually in state income, sales and property taxes with an eye toward dodging a veto by Gov. Laura Kelly.

During debate on the package Tuesday evening, lawmakers affirmed reductions in income tax rates paid by earners in three brackets — a deliberate avoidance of the Kansas Senate GOP’s preference for a single-rate, flat-tax plan opposed by the Democratic governor. Kansans earning less than $7,000 would no longer pay state income tax, while people making $7,000 to $30,000 would see rates fall from 5.25% to 5.2% and those taking in more $30,000 would have their rate cut from 5.7% to 5.65%.

Under Senate Bill 300, the standard deduction on state income taxes would be raised 3% and tied to changes in the annual rate of inflation. Personal exemptions to state income tax would be elevated and linked to inflation, but with a two-year sunset to allow for adjustment if the economy faltered.

The state income tax on Social Security benefits would be eliminated starting in the 2024 tax year rather than phased out over four years per the original House bill. An amendment to the House bill would terminate the state’s 2% sales tax on food on July 1 instead of Jan. 1.

The legislation would lower the state’s property tax for K-12 public education from 20 mills to 18 mills. In addition, the residential exemption on this piece of state property tax would be raised from $40,000 to $100,000. The original version of the bill would have doubled that exemption to $80,000.

The bill endorsed 123-0 by the House moves to the Kansas Senate, where its fate was uncertain. House Speaker Dan Hawkins, R-Wichita, urged Kelly to sign the bill if it reached her desk.

“I don’t know if you all are having the same feeling I am,” Hawkins said. “But I gotta tell you, I am really proud of the House of Representatives. Really amazing what happens when everybody works together. I don’t have any other words to say, except, thank you. You guys are awesome.”

‘Responsible, sustainable’

A Democrat’s amendment layering on a series of tax reforms — including retention of a 3.1% income tax rate for the lowest earners and implementation of a child tax credit — was defeated in the GOP-led House. Likewise, Republican-sponsored amendments seeking to lower property taxes on all-terrain vehicles and to exempt taxes on the sale of gold and silver were rejected.

Before amendments were added to make the bill more costly to the state treasury, the package recommended by Weskan GOP Rep. Adam Smith, chairman of the House Taxation Committee, would have reduced state revenue by $412 million in the first year, $404 million in the second year and $452 million in the third year of implementation.

For example, ending the state’s 2% sales tax on groceries six months earlier than current state law required would cost the state an estimated $70 million.

“This comprehensive tax relief proposal provides responsible, sustainable tax relief to Kansas taxpayers,” said Smith, who acknowledged individual members might have preferred to shift a few tax chess pieces. “I consider it a good compromise when everybody walks away equally frustrated.”

Rep. Blake Carpenter, R-Derby, said he would “sincerely hope” the governor signed onto the House tax legislation because it “puts more money back into the pockets of Kansas.”

Hang on to hat

House Minority Leader Vic Miller, the Topeka Democrat, urged House negotiators to dig in against likely Senate opposition to the bill. The House bill could be viewed as a dual-rate state income tax model. The single-rate state income tax bill vetoed early in the 2024 legislative session by Kelly was a creation of Senate conservatives who might insist on returning to that framework.

Important pieces of the bill could be transformed during House and Senate negotiations of a six-member conference committee, which could peel off votes necessary for ratification of a deal in both chambers.

“Do not let the other side mess with this package,” said Miller, referencing Senate negotiators. “I think this may be what people out across the state have been looking for. Hang tight if this goes to conference.”

The state has a projected budget surplus of about $3 billion. The cash piled up during the past few years as the House, Senate and Kelly struggled to find common ground on tax policy. In January on the first day of the 2024 legislative session, the governor introduced a bipartisan tax package offering about $1 billion in tax savings over three years.

She subsequently vetoed House Bill 2284, a more costly plan pushed by House and Senate GOP leaders and required transition to a single-rate state income tax that targeted tax relief at the wealthiest Kansans. In February, the House failed to secure a two-thirds majority necessary to override the governor.

“I will not let legislators leave Topeka this year without meaningfully and responsibly cutting taxes for middle-class families,” Kelly said at that time. “I will call a special session if I have to — anything to ensure Kansans see tax relief, immediately.”

That single-rate idea

During debate on the House tax plan, Rep. Tom Sawyer, D-Wichita, reminded colleagues about financial devastation caused by adoption in 2012 of a bill designed to start the state on a path to elimination of the state income tax.

The bill signed by GOP Gov. Sam Brownback aggressively lowered state income taxes, but didn’t modify spending to correspond with loss of revenue. When tax receipts crashed, the budget had to be relentlessly cut. The tax plan, which Brownback considered an experiment in state taxation, was repealed by the GOP-led Legislature in 2017.

Supporters of the single-rate income tax favored previously by Senate President Ty Masterson as well as House Speaker Hawkins, maintain a presence in the Legislature. Rep. Susan Humphries, R-Wichita, expressed regret the single-rate strategy could be slipping through their hands. Nine of her House colleagues concurred with her commentary.

“Better is possible,” Humphries said. “We could have and should have passed a single-rate tax plan that lowered every Kansans’ taxes and been harder to raise in the future. For smaller-government, growth-oriented conservatives, let us continue to work together toward a path to economic growth that would send a signal to retirees, businesses and investors that Kansas wants to compete and we want to match our hard-working, honest and faith-built values with better policy. If this is the best we can do today, we’ll take it.”