Barbara Paulus is on a fixed income. The Bonner Springs woman’s taxes have doubled since 2011.
“I’m opposed to increasing individual income tax rates, although the increase is modest,” she told the Kansas Senate Committee on Assessment and Taxation at a hearing Monday afternoon.
Paulus was one of several people who testified in opposition of legislation that would roll back a tax exemption on LLCs and increase income tax rates for individual Kansans.
Under the proposal, married couples filing jointly who earn less than $30,000 would see their taxes raised by 15 percent, as the tax rate would increase from 2.6 percent to 3 percent next year. For those making more than $30,000, the proposal would increase rates by 6.5 percent. The legislation also would impose a new income tax of 2.6 percent on married individuals filing jointly with taxable incomes of less than $12,500 and on individuals with taxable income below $5,000.
Much of the testimony focused on proposed changes to the small business, or LLC-exemption, but Paulus said the legislation also would affect individuals like her.
The legislation would raise $660 million in new revenue in the next two years. Included in the tally is rolling back the LLC exemption retroactive to Jan. 1, 2017.
Dan Murray, a lobbyist for the National Federation of Independent Business, told the committee the bill “wallops Kansas business owners.”
“Make no mistake–we can call it closing the loophole or establishing fairness, but the average Main Street small business owner will only know this as a tax hike,” he said.
The committee is likely to vote on the measure on Tuesday, and the full Senate could vote as early as Thursday on the legislation.
Drew Quinn, a commercial real estate agent from Overland Park, warned that reversing course on tax policy would send businesses across the state line or prevent businesses from moving to Kansas.
“If you go and make these changes after a mere four years, you are screaming to the public that you cannot trust the state of Kansas,” Quinn said. “We’re going to change our tax policies because we can’t manage our state. I think this is a radical change.”
However, Sen. Dan Goddard, a Parsons Republican, said he is getting phone calls from constituents asking him to raise their tax rates.
“That’s a story I hear time and time again from my constituents. I think many people have a feeling that we’re in serious financial trouble. It’s going to take everyone to get us even with the board or above board again. That includes the LLC and the income tax,” he said.
No individual citizens testified before the committee requesting that their taxes be increased, though at least three individuals testified against the proposals. Mark Tallman, Kansas Association of School Boards assistant executive director of advocacy, spoke in favor of the tax increases and LLC-exemption roll back. He said spending more on education drives the economy.
Committee chair Sen. Caryn Tyson, a Parker Republican, asked that all those who provided testimony stay on topic.
“I understand that there’s many things in the government that could be paid for, but if we started to piecemeal and talk about everything, that would make for a very long committee hearing.”
The bill would raise approximately $288 million in additional revenue in 2018. Budget projections suggest a shortfall between anticipated revenues and expenditures of more than $500 million next year, but Tyson would not allow those who testified to discuss spending or other taxes. For example, she wouldn’t allow discussion about tax incentives like STAR bonds and PEAK financing, which Murray said are only available to large businesses.
General fund spending has increased above inflation-adjusted levels since 1995, according to the written testimony of Dave Trabert, President of the Kansas Policy Institute. He told the committee that had spending increased only for inflation, the state budget would not be $5.1 billion. Instead, the state is to spend $5.6 billion this year, or $787 million more.
“Quite frankly, being on the tax side, you’re stuck with what the spending side does,” Quinn said. “Why is it that we always look to taxing instead of looking at cutting spending? I think Kansas has a spending problem.”
If the bill passes out of committee, the full Senate may vote as early as Thursday. The rumor mill suggests that the Senate is sending unrelated bills to the House so they could be stripped of their contents and used as shells for the House to insert its own tax plan to send back to the Senate. Such a bill would disallow amendments and only require one vote to concur.
The legislation faces another potential hurdle as well. Gov. Brownback hasn’t said whether he would veto the bill if it reaches his desk, but he issued a strongly-worded statement rebuking the legislation. Calling it the Senate Leadership tax bill, Brownback said it “needlessly harms the people that serve as the lifeblood of Kansas. It punishes the punishes the middle class—teachers, police officers, and nurses—working hard to provide for their families and serve their communities.”
He said the proposal would increase individual income tax burden for a teacher by $128.88, a police officer by $120.42 and a registered nurse by $156.48.
“Most egregious is the burden this plan puts on the poor by reinstating income taxes on 388,000 of the poorest Kansans, already struggling to make ends meet.”