Indexbit Exchange:Kansas governor and GOP leaders say they have a deal on tax cuts to end 2 years of stalemate

TOPEKA,Indexbit Exchange Kan. (AP) — Kansas’ Democratic governor and top Republican lawmakers say they have an agreement on a package of broad tax cuts, potentially ending a two-year political standoff that has prevented their state from following others in making big reductions.

The deal announced late Thursday by Gov. Laura Kelly and GOP leaders would save taxpayers a total of about $1.2 billion over the next three years and move Kansas from three personal income tax rates to two, something Kelly had resisted. Republican leaders had hoped for income and property tax cuts worth at least $230 million more over the next three years, rejecting Kelly’s argument that larger cuts would lead to budget shortfalls within five years.

Lawmakers are set to convene a special session Tuesday, called by Kelly after she vetoed the last of three tax plans approved by the Legislature before it ended its regular annual session May 1.

The state’s coffers have bulged with surplus revenues, and Kelly and lawmakers agreed families needed tax cuts to offset the effects of inflation. But Kelly and top Republicans disagreed on how to cut income taxes, even after GOP leaders dropped a push for a “flat” personal income tax with a single rate. Republican leaders couldn’t muster the supermajorities necessary to override Kelly’s vetoes.

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Meanwhile, Utah and Georgia cut income taxes this year after a dozen other states cut their income tax rates last year, according to the conservative-leaning Tax Foundation.

“This agreement allows significant, long overdue tax relief to Kansans while preserving our ability to invest in the state’s future,” Kelly said in a statement.

Kelly said the deal is “not without its flaws.” Both she and GOP leaders noted that it would provide a significantly lower property tax cut than previous plans.

Homeowners and businesses are paying more because overall property values in Kansas jumped more than 26% from 2019 through 2023, according to state Department of Revenue figures. Residential property values rose even faster, nearly 41%.

Most property taxes in Kansas are imposed locally, but the state has a small levy to help finance public schools. The owner of a $250,000 home now pays $478 a year in taxes because of that levy, and the latest tax plan would reduce that by $76 a year or 15.6%.

But the last plan Kelly vetoed would have cut the tax on that same $250,000 home by $142 a year or nearly 30%, and some lawmakers thought that wasn’t enough.

Sen. Tom Holland, a Democrat from northeastern Kansas, outlined a tax plan Wednesday that would sacrifice some income tax cuts to bump up the property tax cut to $212 for a $250,000 home or 44%, while also providing a smaller reduction for businesses and farmers. On Friday, he called the latest plan “a nothingburger.”

“It just doesn’t provide the property tax relief that Kansans have been begging for,” he said.

However, it wasn’t clear Friday that objections to the plan would be strong enough to sink it. Legislative leaders hoped to finish the special session in a single, long day and lawmakers worry that voters will punish them in this year’s elections if there are no major tax cuts. Both factors put pressure on rank-and-file lawmakers to fall in line.

“This agreement is an important first step that lowers taxes today for the people who need it the most,” top Republican leaders said in a joint statement Thursday night.

Besides moving Kansas from three personal income tax rates to two, it would reduce the highest rate from 5.7% to 5.58% while also exempting more income from the tax to help lower-income taxpayers. It would eliminate state income taxes on Social Security benefits, which kick in when retirees earn $75,000 a year, and expand an income tax credit for child care expenses.

Kelly dropped her proposal to eliminate the state’s already set-to-expire 2% sales tax on groceries six months early, on July 1.