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Week Five and Six Update: Taxes Dominate the Discussion

It has been about 10 days since my initial newsletter, and with all that has transpired in Topeka on taxes, I wanted to provide you an update.

The major subject, as you have likely gathered from news reports, is indeed taxes. Last week, we were supposed to have a debate on a plan offered by Senate leadership, but then that did not occur. This week, we debated and voted on two plans – one offered by the Democrats, which failed; and another passed by the House, which was narrowly adopted after of my colleagues flipped to Yes while the vote was being held open. For bystanders who aren’t aware of the behind-the-scenes machinations of what happens in Topeka, the lawmaking process can be hard to follow, and it’s even hard to follow for some of us who are in the Capitol. While we are ultimately voting on policy, politics also plays a huge role in every vote we cast. While that’s frustrating to some, it is also reality and not likely to change – the best each of us can do is cast votes appropriately based on our understanding of the issue, the feedback from our district, and our own conscience.

I will talk about taxes more in a moment.

Taxes and the need to balance our budget aren’t the only issues before us, of course – though after last Thursday, Senate Leadership has not held any votes on any other bills on the floor. However, work in committee has continued and that occupies a great deal of time. I’m also pleased to report some progress on some issues related to Cowley County:

  • A bill (SB 75) to add a member to the Cowley County Community College Board of Trustees was placed on Consent Calendar and will now be on General Orders for the next time we vote on bills. You might recall me mentioning this in my first newsletter – we now have a satellite facility in Sumner and this new board member would elected from Sumner for as long as CCCC receives financial support from Sumner County.

  • Two identical bills (SB 205 and HB 2341) are now before their respective committees in either chamber, and the House version earned a hearing this past Wednesday. These bills would add Cowley County to the list of counties included in the Rural Opportunity Zones (ROZ) that the legislature adopted several years back. Rural Opportunity Zones have been authorized to offer one or both of the following financial incentives to new full-time residents:

  • Kansas income tax waivers for up to five years

  • Student loan repayments up to $15,000

I strongly support both bills and will update you on their progress in a future newsletter. Back to taxes. The best way I can describe the sequence of events is to do so in chronological order. Late last week, we were poised to debate a tax plan offered by Senate leadership, along with a budget bill. In fact, all committees were cancelled on Thursday as we were supposed to have an day-long debate starting at 8 a.m. Senate leadership claimed that there was a consensus among Republicans that the bill was the best option, even though several Senators disputed that claim. Whatever consensus there was clearly did not last long, as on Thursday morning, the debate was cancelled after it was clear any of the bills would not pass. Senate leadership also said they would not debate any other bills until the tax and budget issues were resolved.

Fast forward to late this week, when the House debated (on Wednesday) and adopted (on Thursday) HB 2178 on by a vote of 76-48. This bill is supported by a coalition of Democrats and liberal-leaning Republicans. The legislation:

  • Completely repeals the small business incentive – no lids or caps, a complete repeal.

  • Increases individual rates on the middle class.

  • Reintroduces a third tax bracket – we have been at a flatter two brackets for 5 years.

  • Completely ends the glide path to zero, which said that as our revenues grew, income taxes would decrease.

  • Is retroactive for all tax increases to January 1 of this year.

As I noted, the House adopted this bill and it was then sent to the Senate. On Thursday, however, the Senate first debated a plan offered by Senate Democrats that was similar in structure but actually increased tax rates even further on the third bracket. That plan was defeated by a vote of 30-10. On Friday, we then considered the House plan and it passed narrowly 22-18. The vote was actually 20-19-1 for quite some time, before one Senator who had voted no flipped to Yes, and another Senator passing voted yes, resulting in the final vote. I voted against the legislation for the following reasons:

  • My foremost reason for opposing this tax increase is the retroactivity. It is simply wrong to increase taxes on people who have already collected a paycheck and had their taxes taken out, or those who have made economic business decisions based on tax policy already in place. At a time when many are preaching “tax fairness”, this is fundamentally unfair.

  • I do not support individual rate increases, and certainly not the reintroduction of a third tax bracket, as we need to preserve the progress we have made to a fairer, flatter system. Again, if fairness is our goal, having a confusing array of different rates for different people is not the way to get there.

  • On the small business income exemption, if we are going to pursue reform, I believe we need to seriously explore a lid (some have suggested $100,000), to be fair to small business owners the policy is meant to benefit. Over half of those taking advantage of the law actually make less than $25,000 a year! 93% make less than $100,000. As a result, a complete repeal would place a massive new tax burden on these small businesses who have rightfully taken advantage of this incentive and who for the law was intended. Thus, we should be fair to them if we are going to pursue reforms to this policy. I have mentioned this as an alternative and I will continue to do so.

  • Before pursuing any tax increases, we need to explore spending reductions and efficiency opportunities first, so we can minimize the need for any tax increase at all.

It is expected that Governor Brownback will veto the legislation, and given neither chamber had the 2/3 necessary to override on initial passage, it is likely that veto will be sustained and we will be back to the drawing board for another attempt. As always, I will keep an open mind. As legislators, we do need to balance our budget and adopt finality to our tax policy so families and businesses can have certainty regarding what our policy is going to be for the next several years. It is an honor to represent the people of the 32nd District! Sincerely, Larry Alley

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