TOPEKA, Kan. (AP) - Democratic Gov. Laura Kelly on Tuesday denounced a Republican plan for cutting Kansas income taxes as “unthinkable” during the COVID-19 pandemic and proposed an alternative that would pay for its relief by taxing online music, movies and streaming services.
Kelly outlined her proposal just hours before the Kansas Senate ahead of a debate on the GOP’s measure, which was aimed at providing $423 million in relief over three years to businesses and individuals paying more to the state since an overhaul of federal tax laws in 2017. The Senate’s top Democrat, Minority Leader Dinah Sykes, said she would offer Kelly’s proposal as an amendment to the Republican bill.
The governor’s proposal appeared unlikely to pass in its entirety with Republicans in control of the Legislature, because many of them oppose the provision to impose the state’s 6.5% sales tax on digital products, such as online music and streaming services. Kelly’s plan is designed to avoid costing the state any net revenues and to provide its relief to a broader group of individual taxpayers - and no relief for businesses.
Top Republicans contend they’re trying to help the people and businesses whose higher state tax bills have generated unexpected revenues for the state, comparing the windfall to finding someone’s lost wallet full of cash on a sidewalk. But Kelly vetoed two similar GOP bills in 2019, arguing that they would undermine funding for public schools and critical state services.
“It would be bad enough to introduce this bill in a normal year, but this year makes it particularly irresponsible,” Kelly said of the GOP plan during a Statehouse news conference. “It is unthinkable that legislative leadership, during a health and economic crisis the likes of which we haven’t seen for 100 years, when we are trying to steer Kansas toward recovery from the pandemic, that they would even consider such action.”
Kelly’s comments signaled that she is likely to veto the GOP tax plan if lawmakers passed it, though she stopped short of a public promise. Republican leaders didn’t have the two-thirds majorities necessary in 2019 to override Kelly’s vetoes, but elections last year made the GOP supermajorities in both chambers more conservative.
And the GOP plan appeared likely to grow as senators debated it. Conservative Republican Sen. Dennis Pyle of Hiawatha found broad support for proposals to exempt Social Security and other retirement benefits from state income taxes, at a cost of nearly $230 million a year.
Senate approval of the tax bill would send it to the House, where a committee already has been reviewing tax issues. Republican leaders have made cutting income taxes a top priority.
“We need a balancing act,” said Senate tax committee Chair Caryn Tyson, a Parker Republican. “We need a level playing field, and that is what I am trying to do.”
The federal tax changes in 2017 were championed by former President Donald Trump and discouraged people from claiming itemized deductions on their federal returns. Kansas law does not allow people to itemize on their state returns if they don’t on their federal returns, resulting in larger state tax bills for some.
The bill before the Senate would allow individuals to itemize on their state returns even if they didn’t on their federal returns and allow them to do so even for last year. That’s the majority of the relief provided by the bill over three years, but about 45% of the savings for taxpayers would go to businesses.
Kelly’s plan is focused solely on individuals and would increase the state’s standard income tax deductions for individuals by 35% over two years. She and fellow Democrats argued Tuesday said the governor’s plan would not only provide relief to more people but help low-income and working-class families more than the GOP plan.
That part of Kelly’s plan could appeal to some Republicans - as something to add to the GOP plan. Senate President Ty Masterson, an Andover Republican, said increasing the standard deduction “does help people.”
But Republicans have derided the idea of imposing the sales tax on online music, movies and streaming services as a “Netflix” or “Baby Yoda” tax that will hit families stuck at home because of the pandemic. Kelly’s plan also would require websites like Amazon, eBay and Etsy to collect the state’s tax when they sell other businesses’ goods to Kansas residents.
Kelly and other Democrats argued that those provisions merely modernize the state’s tax laws, but the changes would raise about $101 million a year.
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