All options on table as legislators look to fill growing budget hole
by Andy Marso, KHI News Service
House and Senate tax committees began talks Thursday on a plan to close a burgeoning budget hole and end the 2015 session.
Both committees pushed to next week any talk of whether to approve Gov. Sam Brownback’s proposal to raise tobacco and alcohol taxes.
Sen. Les Donovan, a Wichita Republican who chairs the Senate Assessment and Taxation Committee, said he is preparing amendments that would raise the cigarette tax by $1 or $0.50 per pack if the committee does not approve the governor’s proposal for a $1.50-per pack increase.
“We’re going to try to get something out of here that will raise some revenue,” Donovan said. “But we’ve got to be realistic about what we can do.”
The tobacco tax increase is particularly popular with public health experts, but has failed to gain much traction with legislators.
Donovan said his committee would debate specific tax bills Tuesday through Thursday next week.
Lowering the state’s earned income tax credit and making it non-refundable will also be considered, he said.
“That’s going to be in the mix,” Donovan said.
The state’s EITC mirrors a federal tax credit expanded by former President Ronald Reagan that gives money back to low and moderate-income workers in amounts that depend on income level and number of children.
Making it non-refundable would mean that recipients would no longer receive checks from the state if they qualify for more than they pay in taxes.
Rep. Marvin Kleeb, a Republican from Overland Park who chairs the House Taxation Committee, said his committee will look at the governor’s tobacco and alcohol proposals Monday and urged members to have their questions ready.
Representatives from the University of Kansas Medical Center, the American Cancer Society’s Cancer Action Network and other health groups testified that the proposed $1.50-per pack increase in cigarette taxes would gain the state about $90 million in the short term and lower health care costs by as much as $1 billion in the mid-term by prodding tens of thousands of Kansans to quit smoking or never start.
The governor also proposed a tax increase on smokeless tobacco products, which is projected to bring in far less revenue because of the lesser popularity of chewing tobacco and snuff.
There are currently few public health professionals in the Legislature, and one legislator who works with health professionals said he’s not sure yet how he will vote on tobacco increases.
Rep. Lane Hemsley, an attorney who is executive director of the Kansas Dental Board, said dentists play a role in diagnosing oral cancers, which is related to tobacco use in about 90 percent of cases, according to the Mouth Cancer Foundation.
Hemsley said oral cancers, if not caught quickly enough, can lead to patients having portions of their jaws removed or even death.
“From a health care standpoint obviously I think the risks and the impacts of cigarette use or other tobacco use, those are fairly well known,” Hemsley said. “I think those are meted out and I think we understand there are health risks we would obviously voluntarily decide to entertain if we chose to use those types of products.”
Hemsley said his vote on tobacco taxes would be informed by the opinions of his constituents, who he said have given him a broad range of advice thus far.
“I’m not certain my district is as interested in targeted taxes on one particular piece of consumption but I think I would be misguiding everybody if I didn’t say I think everything is on the table,” Hemsley said.
Kleeb said after his committee vets the governors proposals, including alcohol and tobacco taxes, it will move on to other potential revenue sources.
“Whatever the solution may be, it will probably be two or three parts, or even more,” Kleeb said.
Thursday’s House Taxation Committee meeting laid a foundation for one of the foremost tax fights to come, as some conservative Republicans defended a tax exemption on “pass-through” earnings of business owners that was part of a large income tax package in 2012.
Democrats and some Republicans have proposed rolling back or entirely repealing that exemption, saying it was more costly than anticipated and made the tax structure less fair because it exempted business owners from taxes their workers still must pay.
Gov. Sam Brownback, who spearheaded the 2012 tax bill’s passage and campaigned on it last year, has resisted calls to alter the exemption.
The tax fix is becoming increasingly complex because the budget picture continues to worsen.
A group of economists who met April 20 revised downward their earlier estimates of how much tax revenue the state will collect next year.
With the new estimates, the gap between how much the state is projected to spend from the general fund during the fiscal year that begins July 1 and how much revenue it will take in is almost $800 million.
The Legislature expects to approve Brownback-proposed budget maneuvers like transfers from other funds to cut that deficit to about $422 million. From there, even if legislators also approve the governor’s tax increases in full — including the tobacco and alcohol taxes — there would still be a projected shortfall.
Rep. Don Hineman, a Republican from Dighton, said passing the governor’s proposals would only make up about half the difference.
“So we need to at least do the governor’s recommendations for tax plus something additional to get back to zero,” Hineman said. “And we obviously don’t want to aim for zero. We don’t want to leave town and have the governor make allotments a few weeks into the new fiscal year.”
State law requires legislators leave an ending balance of 7.5 percent — or about $470 million in next year’s budget — but that law is routinely ignored.
Kleeb said committee members should consider how much of a cushion they are “willing to discuss.” A budget expert who works for the state recommended an ending balance of between $50 million and $100 million, which would make the unofficial target for tax talks about $500 million in new revenue.
Democrats opposed the 2012 tax plan and have generally stayed on the sidelines of the discussion over new taxes. Rep. Tom Sawyer, the top Democrat on the House tax committee, said they’re willing to talk to Republicans about supporting a tax package, but only if it repeals the pass-through tax exemption for business owners.
When asked if the minority party also wanted to change the part of the 2012 bill that lowered income tax rates, Sawyer said “that’s negotiable.”
Several Republicans said they feared ending the income tax exemption for businesses would slow the rate of job growth the state has seen. They pointed to 8,800 new tax filers among the estimated 333,000 business owners currently using the exemption.
Rep. Ken Corbet, a Republican from Topeka, said he was concerned about raising taxes of any kind.
“I guess what worries me is, by raising taxes, do you still think it will make Kansas a leading place for growth and people to want to come and raise their family, retire and start a business?” Corbet said. “Money walks. It’s like habitat for animals. You need water, cover and food. Kansas needs to be friendly to get these people to stay here and come here.”
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