Sunday, March 24, 2013

Democrats say tax cuts are tax shifts

By SCOTT ROTHSCHILD, The Lawrence Journal-World

Gov. Sam Brownback and his conservative Republican colleagues in the Legislature are pushing through tax changes that they call tax cuts.

But Democrats say that is not accurate.

While the Republican proposals would reduce state income taxes, or are at least aimed in that direction, those plans include tax increases in other areas that disproportionately fall on middle- and low-income Kansans, Democrats say.

"It's just a classic tax shift," said House Minority Leader Paul Davis, D-Lawrence. "We are raising taxes on middle income Kansans in order to pay for tax cuts that primarily benefit the wealthy."

The tax plan approved by conservative Republicans in Senate would cut income taxes by $1.87 billion over five years, according to a comparison of various tax plans by the non-partisan Kansas Legislative Research Department.

But that plan keeps in effect the 6.3 percent state sales tax, which under current law is supposed to decrease to 5.7 percent on July 1. Brownback has also wanted to keep the sales tax at 6.3 percent. Making that higher sales tax rate permanent will cost taxpayers $1.5 billion over five years, the analysis said.

And higher sales taxes are more of a burden on poor families because the tax takes a greater portion of their incomes as compared with wealthier people. In addition, Kansas is one of the few states that charges the full sales tax on groceries.

The Senate plan also phases out most income tax deductions as income tax rates drop, which will increase tax revenue by another $910 million over the five years, according to the legislative staff analysis. Including some other proposed changes, the Senate bill would net the state $497 million in new revenues during the next five years.

"It actually takes more money out of the pockets of Kansas families than it puts in during the first four years of implementation," said Sen. Tom Holland, D-Baldwin City. "Even more disturbingly, the bill reneges on the promise that the Kansas Legislature made to sunset the temporary sales tax," he said.

The temporary increase in the sales tax was passed in 2010 by a coalition of Democrats and moderate Republicans to shore up the budget, which had been decimated by revenue shortfalls during the recession.

But Brownback and Republican leaders have argued for the past two years that reducing the income tax is key to stimulating the economy.

The plan approved by Republicans in the House allows the state sales tax to decrease to 5.7 percent on July 1 and would chip away at the income tax if annual state revenues increase more than 2 percent. Itemized deductions, such as the popular home mortgage interest and property tax deductions, would start to be reduced.

Davis has called the plan a $400 million tax increase because the lost deductions over five years will bring in more tax revenue than the proposed cuts, according to the legislative analysis.

Rep. Richard Carlson, R-St. Marys, and chairman of the House tax committee, said that criticism was "highly misleading" because it did not take into account the lowered sales tax.

Carlson defended the House plan, saying that lower income Kansans will benefit by the reduction in the sales tax, and lowering income tax rates.

But Davis said the House and Senate proposals are being made simply to keep afloat last year's tax cuts signed into law by Brownback.

"It's a tax increase that is being forwarded because of this reckless income tax reduction bill that was passed last year that we cannot afford. It is way too big," Davis said.

Last year, Brownback signed into law cuts that exempt the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes. In addition, the law decreased the individual income tax rates, with the top rate dropping to 4.9 percent from 6.45 percent, and the lowest rate from 3.5 percent to 3 percent.