TOPEKA — The Kansas Senate is prepared to advance another plan to implement a flat income tax rate, this time with reductions phased in over six years, following last month’s failure in the House to override Gov. Laura Kelly’s veto of similar legislation.
The Senate Assessment and Taxation Committee has scheduled a hearing Tuesday on Senate Bill 539, which packages the flat tax with other provisions similar to those in the bill Kelly vetoed. They include tax cuts for banks, Social Security income and the state property tax that funds public schools.
The committee is simultaneously pursuing standalone bills that would eliminate property taxes used to pay for maintenance of buildings owned by state agencies and universities, as well as a sales tax exemption for disabled veterans.
Earlier this year, the Legislature adopted House Bill 2284, which would have established an income tax rate of 5.25% for all income brackets. The flat tax portion alone would have reduced tax collections by more than $300 million annually, with about half of that money going to the top 5% of wage earners. An analysis by the Institute on Taxation and Economic Policy found that most of the state’s workers would see a benefit of tens of dollars per year, while billionaire Charles Koch saved $875,000 per year.
Kelly vetoed the legislation, and the House failed to override her veto with two-thirds support on Feb. 20.
“The Legislature should take irresponsible flat tax proposals off the table once and for all, and instead focus on meaningful, sustainable tax reform that will not threaten Kansas’ solid fiscal foundation,” said Grace Hoge, a spokeswoman for Kelly, in response to an inquiry for this story. “Kansans have seen reckless tax experiments that hurt our schools, roads, and economy before, and they don’t want to go back.”
The latest proposal would impose a universal income tax rate of 5.7% for 2024, followed by reductions of 0.05 percentage points every year through 2029, when the tax rate would be set at 5.45%. The fiscal impact of the bill had not been posted Monday afternoon.
Kansas currently uses a graduated income tax rate: 3.1% for income under $15,000, 5.25% for income between $15,000 and $30,000 and 5.7% for income above $30,000. The income amounts are doubled for couples filing jointly.
Property taxes
The Senate tax committee on Monday gave approval to Senate Bill 94, which would discontinue statewide property tax assessments to pay for building costs.
Currently, the state taxes property at 1 mill for the Education Building Fund and a half-mill for the State Institutions Building Fund. The legislation would authorize transfers from the state general fund to partially offset the loss of property tax dollars.
Under an amendment to the bill, the state would repeal from statute the Local Ad Valorem Tax Reduction Fund. From 1937 to 2003, the state set aside a portion of sales tax collections and divided the money among counties through a formula based on population and assessed property tax value. The money put into the LAVTRF was used to lower the local property tax burden.
Republicans have resisted calls from Democrats and bipartisan local officials to resume the program, claiming without evidence that counties used the money to grow government instead of lowering property taxes.
Sen. Caryn Tyson, a Parker Republican who chairs the Senate tax committee, said the logic behind SB 94 was to replace the LAVTRF with a similar-sized property tax cut at the state level.
“It’s an actual tax reduction for Kansans,” Tyson said during Monday’s committee hearing. “And we don’t have to worry about all the arguments we heard of will the money go for a tax relief or will it go to grow government?”
“Instead of having the confusing language, not being funded for over 20 years, we’re just gonna get rid of the language so that it’s not there and provide true property tax relief for approximately the same dollar amount,” she added.
If the LAVTRF were utilized last year, the state would have distributed $128 million to counties. Under Tyson’s proposal, property taxes would be cut by an estimated $77.1 million next year. Funding for buildings would be lowered by about $14 million, leaving less money available for deferred maintenance projects at Kansas Board of Regents schools and buildings owned by state agencies.
