Business Tax Exemption Targeted For Repeal In Wrap-Up Session
The budget is the immediate problem facing Kansas lawmakers today as they start their wrap-up session--specifically, how to erase $290 million in red ink and balance the budget.
One of the budget-balancing proposals they’re expected to consider would close a controversial tax exemption for businesses. But as Jim McLean reports, supporters of the measure are having trouble lining up the votes they need.
Kansas State Sen. Forrest Knox held a meeting with constituents last week. The Altoona Republican was in Gridley, a small town in southeast Kansas.
The small group that had gathered for the morning meeting at the community center was in feisty mood. They wanted to talk about the state’s budget problems and their concerns about cuts to universities, highways and public schools. And they wanted to know where Knox stood on a controversial business tax exemption that many believe is making those budget problems worse.
What Knox called "gimmicks, juggling and delaying payments" as a way to fix the cash flow problem, his constituents called "a Band-Aid."
The business exemption was part of the tax cut bill passed at Governor Sam Brownback’s urging in 2012. It removed more than 330,000 business owners and farmers from the income tax rolls.
And it lowered tax collections by about $250 million a year.
Knox is one of the lawmakers who voted for the tax cuts. But now, he’s among a growing number of conservative Republicans who say they’re willing to consider modifying or repealing the exemption.
A Senate bill under consideration would require owners of certain types of businesses – mainly limited liability corporations – to resume paying taxes, but only on 70 percent of their income. A bill in the House would repeal the exemption all together.
Laura Kelly, from Topeka, is the top Democrat on the Senate’s Budget writing committee. She wants to see the exemption repealed but she doesn’t support either bill. She says that’s because neither would generate enough money to solve the state’s revenue and budget problems.
“I think there are many who recognize that just repealing the LLC or modifying the LLC exemption doesn’t fix the problem long term," she says. "And there are a number of legislators who are not interested in another short-term patch.”
Some moderate Republicans also don’t support the bills for the same reason. Republican Rep. Tom Moxley owns a ranch near Council Grove.
“You don’t have to be a CPA to figure out that the money that comes from LLCs is not going to rebalance the budget," Moxley says. "The state will still be bankrupt, it will just be slightly less bankrupt.”
Kelly says election-year politics is also a factor in the LLC debate. Lawmakers who voted against the tax cuts are reluctant to help those who voted for the tax cuts sidestep that issue on the campaign trail.
“I do believe that a number of the proposals that we’re seeing now are knee-jerk reactions to the governor’s poor polling," she says. "And I don’t think people will buy it. There has been enough damage done over a long enough period of time that people recognize political showmanship when they see it.”
Plus, Kelly says, few lawmakers are willing to vote for a tax increase in an election year if it appears headed for a veto.
Brownback Budget Director Shawn Sullivan says even though there appears to be more support for repealing the business tax exemption than there was last year, he expects the current debate to end the same way.
“The tax package that had the LLC portion of it included last session when we were going through that debate received 27 votes in the House," he says. "I don’t believe it would have the votes to pass their on either side.”
If it does, Brownback says he’s prepared to use his veto pen to stop it.