Changes in federal tax law could actually cost some Kansans more in state taxes.
Kansas lawmakers might turn down that revenue windfall and add an election year tax cut instead. A bill they’re backing would cost roughly the same amount as a court-triggered boost to school spending.
The cut to federal taxes has become a signature achievement of the Trump administration and a talking point for national Republicans.
But because of the way federal income tax returns translate to state filings, it means some people in Kansas can’t itemize — and save on their taxes — as they might have before last year’s federal overhaul.
The Kansas Senate has already passed a bill aimed at returning that money to taxpayers — just a year after lawmakers raised taxes to salvage a cratering state budget.
Some of the proposals in the bill are directly related to the federal law. For example, one portion would let Kansans itemize tax deductions whether or not they itemize on their federal taxes.
Another provision would amend Kansas law relating to the repatriation of foreign earnings, another issue addressed in the federal tax bill.
Republican Sen. Caryn Tyson, chair of the Senate tax committee, said lawmakers should not view this as a chance to capture more state tax revenue.
“We’ve got to quit growing government,” Tyson said during a floor debate earlier this month. “This is not our money. This is Kansas taxpayer money. Let’s get it back to them.”
The legislation passed the Senate before lawmakers left for their spring break. It’s now in the hands of House members.
The chairman of the House’s tax committee, Republican Steven Johnson, said House leaders agree with the goal of returning the windfall to Kansas taxpayers. But he said the bill goes beyond that.
“Both chambers want to make sure that windfall stays in the pockets of those taxpayers,” Johnson said. “The challenge is there are so many things in play that, as a package, I don’t believe it is affordable.”
Other portions of the Senate bill delve into additional parts of state tax policy. The standard deduction would rise from $3,000 to $3,750 for individuals. Married taxpayers filing jointly would see their standard deduction go from $7,500 to $9,375.
The proposals would also accelerate the restoration of some tax deductions, including the mortgage interest and property tax deduction. Several deductions eliminated or cut back in the past are phasing back in over several years. The bill would end the phase-in and fully restore those deductions.
Johnson said he expects House lawmakers will consider the bill, but the portions of the legislation outside the scope of the windfall are less likely to advance.
So far, the Legislature has no official estimate on how much the Senate bill would dent state revenue. Heidi Holliday, with the Kansas Center for Economic Growth, said it would mean at least $494 million less for the state over five years. That’s close to the funding increase approved for local school districts.
She calls it premature to make state tax changes, because estimates of the impact of the federal tax cut are not written in stone.
“We don’t even know how much Kansas is going to get as a result of any federal tax law changes,” Holliday said.
The new discussion on tax policy comes less than a year after lawmakers rolled back many of the state’s 2012 tax cuts by overriding a veto from then-Gov. Sam Brownback.
Holliday said the state should be investing in areas of government that faced lean budget years because of the tax cuts. Instead of going down that road again, Holliday said Kansas should invest in services such as infrastructure, higher education and the state’s pension plan.
“It’s really risky for lawmakers to be trying to pass a bill like this right now,” Holliday said.
The most immediate cost is the state’s public school funding boost, which comes in response to a court ruling that said school funding isn’t living up to a requirement in the Kansas Constitution.
Democratic Rep. Jarrod Ousley said pursuing the tax cut plan will make it harder to fund services like schools.
“We need to meet our constitutional obligations first,” Ousley said. “We’ve got a generation of kids depending upon it.”
State budget officials raised the fiscal outlook last week. That prompted Republican Senate President to renew her push for the bill.
However, Wagle didn’t argue for advancing all parts of the bill. She said in a statement that lawmakers should approve the changes to tax itemizing.
“I will urge my colleagues to pass legislation to allow Kansans who currently itemize under state tax law to continue to do so in the future,” Wagle said.
She said after doing that, lawmakers should look at paying back money borrowed from sources such as the state’s pension system, KPERS.
“We owe it to future generations to pay back our current debts and obligations,” Wagle said.
Stephen Koranda is Statehouse reporter for Kansas Public Radio, a partner in the Kansas News Service. Follow him on Twitter @kprkoranda. Kansas News Service stories and photos may be republished at no cost with proper attribution and a link back to the original post.