Monday, February 18, 2013

Legislators face dilemma: tax increases or budget cuts

By SCOTT ROTHSCHILD, The Lawrence Journal-World

Legislators are in a pickle.

Because of income tax cuts they approved last year, the state treasury is projected to lose hundreds of millions of dollars in a relatively short period of time.

So this year, Gov. Sam Brownback is proposing “pay fors” to balance the state budget.

But these “pay fors” are proving unpopular among Brownback’s Republican colleagues because they are tax increases.

They include extension of a 1-cent state sales tax increase, most of which was supposed to sunset on July 1, and elimination of major tax deductions for homeowners.

House Speaker Ray Merrick, R-Stilwell, said Republicans, who own a 92-33 advantage over Democrats in the House, haven’t warmed up to Brownback’s idea to keep the state sales tax rate at 6.3 percent, when it is supposed to ratchet down to 5.7 percent.

“I don’t see a lot of appetite out here to retain the sales tax,” he said.

And legislators are getting heat from realtors and homeowners who don’t want to lose the mortgage interest and property tax deductions. In the Senate, also controlled by Republicans 32-8, a committee put the property tax deduction back in its recommended bill.

Without support for those “pay fors,” Republicans now are looking at budget cuts.

Merrick said he gave his House Appropriations Chairman Marc Rhoades, R-Newton, a pair of golden scissors to start snipping away at state spending. But asked where the budget could be cut, Merrick declined to provide any specifics.

That budget process accelerates this week as the Appropriations and Senate Ways and Means Committee start analyzing big-ticket agencies. On Monday, Ways and Means will consider Kansas University’s budget. A subcommittee already has endorsed a $10 million cut from the governor’s recommendation at the KU Medical Center. That $10 million was earmarked to help start construction of a health education building that KU has said is a major priority.

Brownback said he understands the difficulties that legislators face on tax issues.

“Addressing tax policy is hard,” he said. “Going from a slow growth to pro-growth state involves tax policy that is difficult. You’re moving really from taxing the production side of the equation to the consumption side of the equation, and that is difficult,” he said.

Brownback’s plan, which he started last year, is to cut the state income tax with the goal being the eventual elimination of the income tax.

He argues that will lure more businesses to Kansas and stimulate economic growth. But critics say it is already cratering the budget and threatening education and social services.

House Democratic Leader Paul Davis of Lawrence said most Republicans are divided between those who want to follow Brownback’s lead and those who want to make significant budget cuts.

“When you put conservative Republicans in charge of the store, you’re seeing that they are going to pass massive income taxes (cuts) that largely benefit the rich, that the state cannot afford,” Davis said.

Last year, Republicans, at Brownback’s direction, eliminated tax credits helping low-income Kansans, while also eliminating income taxes for the owners of 191,000 businesses.

Davis added, “And the question is now, are we going to cut things that I think people want to see state government fund — schools, transportation, social services — or are they going to raise taxes on the middle class and the people at the lower end of the scale to pay for it?”