JOHN HANNA Associated Press
Last Updated: May 22, 2012 - 5:18 pm
TOPEKA, Kan. — Kansas Gov. Sam Brownback signed massive income tax cuts into law Tuesday, expressing confidence they would boost the economy and not create future budget problems or shift the state's tax burden to the poor.
"Today's legislation will create tens of thousands of new jobs and help make Kansas the best place in America to start and grow a small business," Brownback said during a ceremony at the Statehouse. "Now is the time to grow our economy, not state government, and that's what this tax cut will do."
The new law will cut individual income tax rates for 2013 and eliminate income taxes for the owners of 191,000 businesses. Coupled with a sales tax reduction already scheduled for July 2013, the income tax cuts would provide $231 million in tax relief for the fiscal year beginning July 1. That annual figure would grow to $934 million after six years.
Democrats and many moderate Republicans — who were absent from the signing ceremony — worry the cuts will create enormous budget problems and force the state to slash spending on public schools, social services, public safety and other programs.
But business owners, conservative legislators and officials in Brownback's administration flanked the governor as he signed the bill. One onlooker, Patti Bossert, the president of both a Topeka staffing agency and a business recruiting firm, said the staffing business expects to hire two new full-time employees and be searching for dozens of new, temporary jobs to fill.
"I, of course, see an immediate change in the way small business owners feel about investing money back into their company," said Bossert, who also serves on a council advising Brownback on the economy.
Fears about the cuts are based on a report from the Legislature's research staff that forecasts a budget shortfall by July 2014 that, if left unchecked, would grow to nearly $2.5 billion by July 2018.
Shannon Cotsoradis, president and CEO of the advocacy group Kansas Action for Children, predicted "devastating consequences." House Minority Leader Paul Davis, a Lawrence Democrat, criticized Brownback for "recklessness" and for converting a healthy budget surplus in a huge shortfall over six years.
"There is no feasible way that private-sector growth can accommodate the price tag of this tax cut," Davis said in a statement.
The new law will decrease rates for all individual income taxpayers, dropping the top rate to 4.9 percent from 6.45 percent for 2013. The standard deductions claimed by heads of household and married couples filing jointly also will increase.
Those changes would be offset by eliminating numerous tax deductions, credits and other breaks, including a rebate that poor families can now claim for the sales tax they pay on groceries. However, legislators rejected a proposal from the governor to eliminate a special tax credit for poor workers that often results in them receiving a payment from the state.
The business tax break targets the owners of partnerships, sole proprietorships and other small companies, allowing them to escape taxes on earnings that they currently have to report as individual income tax filers.
Many critics believe some large companies will change their legal structures to take advantage of the change.
PHOTO: Kansas Governor Sam Brownback shakes hands with Lt. Gov. Jeff Colyer, after signing into law one of the largest tax cut bills in Kansas history. The signing took place in the governors statehouse ceremonial office Tuesday, May 22, 2012, surrounded by small business owners and state legislators. (AP Photo/Topeka Capital-Journal, Thad Allton)
Kansas Governor Sam Brownback shakes hands with Lt. Gov. Jeff Colyer, after signing into law one of the largest tax cut bills in Kansas history. The signing took place in the governors statehouse ceremonial office Tuesday, May 22, 2012, surrounded by small business owners and state legislators. (AP Photo/Topeka Capital-Journal, Thad Allton)
The Washington-based Institute on Taxation and Economic Policy said in a March report that the tax legislation would result on average in a small tax increase for Kansas residents earning less than $20,000 a year, while people earning more than $400,000 would receive the biggest percentage tax cut.
The institute is a research group advocating progressive tax codes, and its board includes Robert Reich, a former U.S. labor secretary under Democratic President Bill Clinton. Matthew Gardner, the group's executive director, said states generally favor wealthy residents over poor ones in tax policy, but Kansas has been "typical" rather than "extreme." He said in eliminating the food sales tax rebate, Kansas joins only Alabama and Mississippi in taxing groceries but not providing offsetting relief to poor families.
The changes signed into law by Brownback, Gardner said, "will make the state more of an outlier."
Figures from the state Department of Revenue for the effects of the income tax changes generally track with the institute's numbers, but administration officials strongly dispute the group's analysis. Brownback called it "wholly unfounded."
The Department of Revenue projects that the coming sales tax decrease — which the institute didn't consider a cut because it was already scheduled — will more than offset any income tax increases for poor families.
The sales tax will decline to 5.7 percent from 6.3 percent in July 2013. Lawmakers promised the reduction two years ago when they boosted the rate to close a budget shortfall, before Brownback took office.
Brownback said the state will help poor families the most by creating new jobs. Derrick Sontag, state director for the anti-tax, small-government group Americans for Prosperity, said the tax cuts are designed to just that.
"We're excited about this — and confident it's going to work," said Sontag, who participated in the ceremony and is married to Brownback's communications director.
Associated Press: Kan. governor signs massive income tax cuts bill amid debate over potential for budget crisis