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    30 May 2015

    To Fill Budget Hole, Kansas G.O.P. Considers the Unthinkable: Raising Taxes

    With the state facing a $400 million budget hole for the coming fiscal year, the conservatives who dominate the Legislature here say they are agonizing over the likelihood of doing something that did not seem to be in their DNA: raising taxes.

    Just three years ago, many of these lawmakers passed the largest tax cuts in state history, saying they would lead to economic growth. But that growth did not appear, and after repeatedly trimming spending to close shortfalls, legislators again find themselves in a prolonged budget battle with no easy answers, where both houses of the Republican-controlled Legislature are proposing tax increases.

    The reason: even anti-tax Republicans are acknowledging that there is not much more to cut without significantly hurting popular programs, including education. 

    The fault lines now seem to run along the question of which taxes to raise. Some believe that income taxes are off limits and that they should raise sales taxes to shoulder the entire burden. Others advocate a mixed approach and said income taxes should be on the table. Democrats argue that increasing sales taxes would be another blow to low-income Kansans to the benefit of the business class.

    And many worry that the only solution will be to repeal the signature piece of the law they passed in 2012: the elimination of taxes on certain types of small businesses.

    “I have to talk to myself about it before I reach that step,” said Senator Les Donovan, a Republican who is chairman of the Senate’s tax committee. “I’m not in favor of raising taxes. I’d much rather be able to see growth take care of what we do.”

    Mr. Donovan has proposed removing the exemption on nonwage income for small businesses, instead giving them a 1 percent payroll tax credit. His bill also calls for increasing the sales tax to 6.5 percent from 6.15 percent on everything except food, which would be taxed at 6 percent.

    The tax battle has pit conservative against conservative and produced all sorts of procedural bickering and legislative posturing. As lawmakers have vowed to work through the weekend, the legislative session will reach the 100-day mark on Saturday for just the sixth time in state history. (Sessions are typically limited to 90 days, and each additional day costs around $40,000.) 

    In addition to ending taxes on some small businesses, lawmakers passed legislation in 2012 and 2013 phasing in rate reductions on personal income taxes — to 3.9 percent from 6.45 percent on the high end and 2.3 percent from 3.5 percent on the low end — by 2018. The reductions were expected to cost a total of about $7 billion through 2019, according to legislative researchers.

    Since those changes, Gov. Sam Brownback and lawmakers have found themselves repeatedly tinkering with the budget to fill hundreds of millions of dollars in shortfalls. The governor has cut some state agency budgets by 4 percent, reduced contributions to the state pension system and shifted money between state accounts. Lawmakers have rolled back funding for poorer school districts and changed the way they allocate money to schools. They have slowed funding increases for entitlement programs.

    Mr. Donovan said the results of the tax law were “never as good as we hoped.”

    “We hoped they would just be a magic lantern and everybody would react to it,” he said. “But, eh, it’s hard to get a company to uproot their business when they’re established and move to another place just because of this difference in tax policy.”

    Still, supporters of the tax bills are not necessarily willing to concede that the cuts were the reason for the state’s fiscal problems.

    Senator Terry Bruce, the Republican majority leader, said that when the cuts were passed, the Department of Revenue gave estimates of how much the changes would cost that ended up being inaccurate.

    While initial estimates, for instance, were that the small business tax exemption would affect about 191,000 entities and cost about $160 million, for the 2013 tax year, 333,000 filers took advantage of the exemption at a cost of $206.8 million, according to the Revenue Department.

    “I don’t know if it was a mistake and the intention was wrong or the effect is wrong,” Mr. Bruce said of the tax law. “It was very aggressive, very quick.”

    The House plan would tax the nonwage income on small businesses at 2.7 percent and increase the sales tax to 6.45 percent, but reduce it to 5.9 percent for food.

    Some Republicans are holding the conservative line, saying cuts to bureaucracy could close most, if not all, of the gap.

    “There’s definitely waste in the budget,” Senator Dennis Pyle, a Republican, said in an interview. “It’s my goal to not raise taxes. We have to let the private sector breathe and operate as freely as possible because that is the revenue driver.”

    But Democrats called the Republican proposals inadequate for fixing the budget woes. “There’s a lot of things you could do to show that you are concerned about all Kansans,” said Valdenia Winn, a Democratic representative. “But are they doing it? Nope. So your little piecemeal baby steps don’t impress me one bit. They’re desperate because you still have those Tea Party people who cannot go home and say, ‘I had to vote for tax increases.’ ”

    Some Kansas small-business owners were mixed about whether they needed the tax exemption.

    Ryan D. Hall, who started his own radiology company in central Kansas last year, said he was not receiving the exemption because all of the money his limited-liability company earned was counted as wages, and the exemption applies only to non-wage income. Yet he said that he hoped to expand his business, and that if he hired employees and bought a building, the exemption could come in handy.

    Read More:http://www.nytimes.com/2015/05/30/us/politics/to-fill-budget-hole-kansas-republicans-consider-the-unthinkable-raising-taxes.html?_r=0
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