TOPEKA, Kan. (AP) - Republican Gov. Sam Brownback and top lawmakers are not on the same page about ending an income tax break for farmers and business owners as the GOP-controlled Kansas Legislature prepares to tackle the state’s severe budget problems.
Legislative leaders said this week that they see bipartisan support for repealing the tax break, which was enacted in 2012 and benefits more than 330,000 farmers and business owners. Lawmakers convene their annual session Monday and must close projected budget shortfalls totaling $1.1 billion through June 2019.
Senate Majority Leader Jim Denning, an Overland Park Republican, predicted that even though Brownback championed the tax break, he’d allow a bill to repeal it to become law without his signature. But Brownback sent no such signals in comments to reporters this week.
The governor defended the tax break as a pro-growth policy that particularly helps small businesses. He also said President-elect Donald Trump and congressional Republicans are considering similar ideas for helping small businesses and boosting the national economy.
“I’d hate to see us walking away from something that’s really taking off,” Brownback said.
Legislators could override a veto with two-thirds majorities in both chambers, 27 of 40 votes in the Senate and 84 of 125 votes in the House. Denning said a straight repeal of the tax break would pass with “veto-proof” majorities after being blocked by Brownback’s allies previously.
“I think the body is going to say, ’We wanted to compromise last year, and you gave us the finger,’” Denning said.
The targeted tax break is an exemption for profits reported by farmers and owners of limited liability corporations and other businesses on their personal income tax returns and not subject to corporate income taxes; it also covers rents and royalties. Brownback advocated the policy in 2012 as part of a larger package of income tax cuts passed by GOP lawmakers as an economic stimulus.
But Kansas has struggled to balance its budget since, and even some Republican voters concluded the tax-cutting experiment was largely a bust. Voters last year ousted two dozen of Brownback’s conservative legislative allies, and many new and returning lawmakers made rolling back the tax break for farmers and business owners a key part of their campaigns.
Legislators believe repealing the tax break could raise $260 million a year.
“There’s a high level of interest in repealing the entire thing,” said House Majority Leader Don Hineman, a Dighton Republican, though he added that he could see a compromise emerging because, “I’d prefer to work with the administration.”
Critics of the tax break say that in addition to contributing to the state’s budget problems, it’s unfair because lawyers, doctors and dentists in partnerships can escape personal income taxes while their workers still must pay them on their wages.
Democrats have emphasized that point while arguing to repeal the tax break, but they also want it to be part of larger revenue-raising package that contains other income tax increases for the wealthy.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, dismissed Denning’s prediction that Brownback would allow a bill repealing the tax break to become law. Hensley predicted a veto.
“This governor cannot acknowledge that his tax policies have been an absolute disaster,” Hensley said. “To call it delusional might be a little strong, but he’s delusional.”
Powerful groups such as the Kansas Chamber of Commerce and National Federation of Independent Business have lobbied to keep the full tax break in place, and Brownback’s staunchest legislative allies held firm when other lawmakers suggested modifying or repealing it in 2015 and 2016.
Brownback stopped short this week of threatening to veto a repeal of the tax break.
But he said, “This has been a very positive, pro-growth strategy, and I’d hate to harm that a point that you’re now seeing it studied and looked at nationally.”
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