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Tax cuts front and center in legislative budget debate

The highly criticized supply-side tax cuts in Kansas that have resulted in a $350 million-deficit in the current fiscal year’s budget are front and center in the legislative budget debate.

As The Topeka Capital-Journal reports, Gov. Sam Brownback, who cut incomes taxes in 2012, sees the moderate Republican and Democratic lawmakers’ call to reconsider the tax cuts ill-conceived economically and poorly timed politically.

Brownback said doubters of supply-side economics should realize that President-elect Donald Trump and U.S. House Speaker Paul Ryan expressed  interest in taking the state’s program for stimulating job creation through income tax reduction to a national stage.

“We’ve pioneered this area,” Brownback told The Topeka-Capital Journal. “I don’t want us to go in a direction that is counter to what much of the country is flowing towards, because they’re targeting the growth of small business and private-sector jobs.”

Brownback cut income tax on owners of more than 300,000 businesses formed as limited liability companies, S corporations or sole proprietorships, which costs the state treasury about $250 million annually and riled up voters, who gave the boot to many conservative GOP lawmakers in the 2016 election.

Brownback also signed a bill deleting the state’s top income tax bracket. The ultimate goal was to zero-out income taxes in Kansas, but the mounting budget deficit has stalled that plan.

Republican Sen. Jim Denning, the new Senate majority leader, said the business-owner tax exemption would likely be repealed in the 2017 Legislature, but to have any kind of an impact on fiscal year 2016’s deficit, it would have to be made retroactive to tax year 2016.

Unsurprisingly, the state government’s tax collections are expected to be significantly less than budgeted expenditures in the upcoming fiscal year, as well.

Previously, budget shortfalls were covered by taking nearly $2 billion from the state highway fund, delaying a contribution to the state pension fund, cutting higher education and Medicaid and increasing the statewide sales tax to 6.5 percent.

Some ideas being floated this time around include the state cashing out a long-term investment fund managed under the state pension system, introduction of flat 5 percent income tax, an increase from the current 2.7 and 4.6 brackets based on income. 

When the legislature convenes Monday, spending reductions, cash transfers and tax increases will be on the table, but finer details of the budget aren’t expected to be released until Wednesday.