Christopher Brown
June 8, 2017

The Kansas Legislature voted late June 6 to override Gov. Sam Brownback’s (R) veto of a bill that will roll back much of his 2012 tax cut package, including a controversial exemption for passthrough income.

The move rejects Brownback’s most significant policy achievement while in office and marks the end of a long struggle that has dominated the 2017 legislative session. It also could reverberate during the coming debate over President Donald Trump’s tax reform proposals, which appear likely to include cutting the tax rate on passthrough income to 15 percent.

The vote in the Senate, the first chamber to take up the override motion, was 27-13. In the House, the vote was 88-31. Among those voting in favor of the override motion was Speaker Ron Ryckman (R), known as a rock-ribbed tax cutter, who opposed rollback bills considered earlier in the session; Senate Majority Leader Jim Denning (R); and House Majority Leader Don Hineman (R).

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Other members of legislative leadership remained loyal in the vote to Brownback, including Senate President Susan Wagle (R) and House Speaker Pro Tem Scott Schwab (R).

In remarks delivered at a bill signing June 7, Brownback defended the job-producing effects of the passthrough exemption and the tax cuts and said that the Legislature’s action the night before was “the wrong move.”

“I think it’s wrong for the long-term view of the state of Kansas,” he said. “It’s wrong for growth, and I don’t think it’s going to be a positive for this state moving down the road.”

Bipartisan Solution

But House Minority Leader Jim Ward (D) described the bill as a “genuine bipartisan solution” that will provide a needed structural fix to the state’s budget picture. “Last night, my colleagues and I voted to move forward with fiscal responsibility and end the Brownback tax experiment,” Ward said in a statement. “It’s not a perfect bill, but it’s an excellent step toward rebuilding our state.”

The bill ( S.B. 30) eliminates the Kansas passthrough exemption and restores a third bracket for higher-income taxpayers. The bill also does away with the state’s “path to zero,” a trigger mechanism that was designed to eliminate the income tax altogether in future years. The new tax brackets will have rates of 3.1 percent, 5.25 percent, and 5.7 percent, replacing the current two-bracket system with rates of 2.7 percent and 4.6 percent.

Other provisions will restore several credits and deductions that were casualties of the 2012 tax cuts, including the child care tax credit, the mortgage-interest deduction, and deductions for property taxes and medical expenses. Each of the deductions will be phased in over a three-year period, at rates of 50 percent in 2018, 75 percent in 2019, and 100 percent in 2020.

Estimated revenue increases from the bill are around $600 million per year, an amount that was too much for fiscal conservatives who voted “no.” But others in the chamber, primarily Democrats, think the amount too little to fix the fiscal damage from the 2012 tax cuts and provide a boost in K-12 education funding demanded by the state Supreme Court.

Some Democrats are already predicting that the court will quickly reject the plan passed by the Legislature June 5 to increase education funding by $195 million in 2017-18 and an additional $100 million the following year. Should that happen, the Legislature will have a new opportunity to wrangle over possible tax increases later this summer, Ward told Bloomberg BNA.

Policy Groups

Tax policy groups that have been pushing for a rollback of the 2012 cuts celebrated the override vote. “Lawmakers took a monumental step forward for Kansas today,” said Heidi Holliday, executive director of the Kansas Center for Economic Growth, in a statement. “To the nation, we’ve been a model of what not to do. Now we will show them the comeback.”

That comeback will be led in part by increased spending on government services that are needed for economic growth, according to Bernie Koch, executive director of the Kansas Economic Progress Council, who has supported rolling back the 2012 tax cuts.

“Senate Bill 30 is not a magic bullet that will turn things around immediately, and returning the state income tax to business passthrough entities will be painful for many, but it’s a very good beginning to reversing our direction, rebuilding our state’s finances, and providing the necessary government services which are an important basis for the economy to succeed,” Koch said in a statement.

Read more from Bloomberg BNA here.

KendraBLOOMBERG BNA: Kansas bolls back passthrough tax experiment, overrides veto