Thursday, May 3, 2012

New estimate shows $712 million deficit from tax cuts

By SCOTT ROTHSCHILD, The Lawrence Journal-World

The tax cut endorsed by Gov. Sam Brownback would drive the state into a $712 million deficit within six years, according to a new state calculation released Wednesday.

But the Brownback administration said that the calculation put together by the Kansas Legislative Research Department was wrong. Kansas Secretary of Revenue Nick Jordan and Brownback's budget director Steve Anderson said the tax cut will boost the economy and lead to a positive ending balance in state coffers.

"We are not playing games with these numbers," said Jordan. "We are confident in our methodology," he said. He said the Revenue Department would release its estimates on Thursday.

Legislators have depended on the non-partisan, professional staff of the Kansas Legislative Research Department for decades.

On Monday, the Legislative Research Department released a state general revenue fund profile that showed the proposed tax cuts would produce a deficit of $161 million in six years. But on Wednesday, it issued a new calculation because the earlier one had an error.

Some legislators said the $712 million deficit under the new calculation would make it difficult to approve such a huge tax cut.

"We can't do something that we can't afford," said Senate President Steve Morris, R-Hugoton.

Senate Democratic Leader Anthony Hensley of Topeka said, "We do not want to self-impose a budget crisis that will put us in the red year after year."

The deficit could not be covered by budget cuts, said Hensley because during the recession the state already cut $1 billion.

The proposed bill would decrease state income tax rates and exempt non-wage business income, which will affect nearly 200,000 businesses formed as limited liability corporations, chapter S corporations and sole proprietorships. It would also follow current law and allow the 6.3 percent state sales tax to decrease to 5.7 percent next year, and provide $180 million over four years to local governments for property tax relief.

After the $712 million deficit figure was released, Jordan and Anderson had a quick briefing with reporters. They said the Revenue Department calculated the impact of the tax cuts on an incremental basis year by year, while the Legislative Research Department figured the cumulative effect of the tax cut.

Jordan and Anderson said their methodology was supported by an independent certified public accountant.

Earlier Wednesday, Kansas Democratic Party Chairwoman Joan Wagnon, who is also a former secretary of the Kansas Department of Revenue, said the tax cut would rob funds from schools and other services while delivering a windfall to wealthy businesses including Kansas-based Koch Industries.

"Certainly the public would not believe this tax break should be targeted to one of the largest and wealthiest businesses in our state," Wagnon said in a statement delivered to the House-Senate tax conference committee that is working on the bill.

Wagnon, who served as revenue secretary under former Gov. Kathleen Sebelius, a Democrat, said there are 38,000 limited liability corporations that would be affected. She said she did a search of the Kansas secretary of state's databases and found 24 business entities related to Koch Industries that are LLCs and would be affected by the proposal. All of the companies are based in Wichita.

"Of course, I have no way of knowing the tax impact of this change on their business. But, their filing status is public, and definitely included in this bill as it stands now," she said.

Jordan defended the business tax cut, saying it would help thousands of small businesses hire more people. "Is that evil? The goal is to grow small businesses," he said.

Wagnon also criticized other parts of the tax-cutting package that would eliminate tax credits for child day care and a provision that would require low-income families who now quality for both the Earned Income Tax Credit and food sales tax rebate to pick one and not benefit from both.

"Again, limiting lower income earners to either the EITC or the food sales tax rebate seems to take from those less able to pay in order to fund a tax break for the LLC's (Koch included!)," she said.