House and Senate negotiate tax cuts; details uncertain

TOPEKA — House and Senate negotiators plan to continue their slog through the details of two income tax reduction bills today.

After two days of meetings, the six-member group has yet to formally agree on anything, though they’ve asked legislative researchers to explore the costs of more than a dozen changes to the tax code. The most expensive aspect of negotiations remains untouched: How much should individual income taxes be reduced?

Still, some themes are emerging.

Senators are poised to agree with House members on phasing out non-wage income taxes for a wide variety of businesses that includes limited liability companies, subchapter S corporations and sole proprietors. Gov. Sam Brownback has pushed for the immediate elimination of that tax and equates it to shooting adrenaline into the hearts of businesses.

But the roughly $180 million per year in lost revenue that would otherwise fund state services has lawmakers searching for ways to ease the sticker shock. The House plan senators have shown initial support for starts in 2013 with three years of exempting the first $100,000 of non-wage income taxes for those business types. It exempts the first $250,000 of income in 2016 and 2017 before eliminating the tax altogether.

Both House and Senate negotiators agreed that the food sales tax refund available to low-income families should stay in place, instead of being repealed to help pay for the tax cuts. A proposed elimination of sales tax on groceries approved by the House appears unlikely to survive negotiations because it would add about $320 million to the cost of the plan.

The two plans being discussed each cost hundreds of millions of dollars, which many opponents worry would erode essential state services that have already been cut as result of the Great Recession.

Before legislators began changing Brownback’s plan, it carried a roughly $90 million price tag. But it proved politically unsavory because it eliminated dozens of popular tax credits and deductions — including the mortgage interest tax deduction that benefits home owners and the earned income tax credit that helps low-income working families.

A Senate committee changed Brownback’s plan by keeping the status quo on several tax credits and deductions and removing a 2 percent cap on the growth of state spending. Brownback wanted to cap spending and use any additional revenue to further reduce individual income tax rates — so long as the state had a healthy ending balance.

Brownback had also proposed continuing the penny sales tax increase lawmakers approved in the face of budget deficits in 2010. A six-tenths portion of that was slated to sunset in July 2013, and several senators say they’d break promises to constituents if they allowed the tax to continue. So that part of the plan died too, adding about $251 million to the plan’s cost.

The changes pumped up the estimated cost of the Governor’s plan to more than $800 million in 2014, and that number grows through the years. But Brownback and many Republicans and business leaders say cutting business taxes and individual rates will jump-start the economy and spur growth that will, in turn, pump more sales, income and property tax into state coffers as businesses expand and hire new people.

The version of Brownback’s plan approved by the Senate would trim individual tax rates for the first $30,000 of income from 3.5 percent to 3 percent; the $30,000 to $60,000 tax bracket from 6.25 percent to 4.9 percent; and the $60,000 and up bracket from 6.45 percent to 4.9 percent.

The House GOP plan trims those figures back to 3.37 percent, 6.05 percent and 6.28 percent.

Members in both chambers worry they might have to make even more modest reductions to keep the price of the tax plan down. But they’ve reached no agreement.

Check back for updates later this afternoon and tomorrow as negotiations continue.