Anticipated Approval for Kansas Tax Policy

TOPEKA — In a significant development for Kansas tax policy, Governor Laura Kelly, along with top House and Senate, announced that negotiations have culminated in a compromise tax reform bill. Lawmakers will review this bill during an upcoming special session.

Senate President Ty Masterson of Andover and House Speaker Dan Hawkins of Wichita expressed optimism that the agreement would secure approval for Kansas tax policy when the session opens on Tuesday. Governor Kelly affirmed that she would sign the bill if it garners majority support in the Legislature.

Structural Changes in Tax Reform

Transition to a Two-Rate System

The compromise proposal aims to streamline the state’s income tax structure into a two-rate system, diverging from the single-rate concept initially proposed by Masterson and Hawkins. Governor Kelly had previously recommended retaining a three-rate structure spanning from 3.1% to 5.7%.

Statements from Negotiators

Participants in the closed-door negotiations indicated that the overall tax reduction in the agreement falls short of the levels GOP lawmakers had initially sought. During the regular 2024 session, Governor Kelly vetoed three major tax bills, none of which were overridden by the Legislature. The governor suggested a plan to provide approximately $400 million annually in tax cuts.

“Legislative leadership and I have come to a consensus on a tax relief package that will be presented to the House and Senate during the upcoming special session,” Kelly stated. “This agreement allows significant, long overdue tax relief to Kansans while preserving our ability to invest in the state’s future.”

Kelly emphasized that the proposed package meets her affordability criteria but acknowledged that transitioning to a two-tier system would limit opportunities for property tax reductions.

Additional Legislative Agenda

GOP Leaders’ Perspective

Hawkins and Masterson highlighted that the tax agreement resembles a bill passed at the end of the regular session, which Kelly subsequently vetoed.

“It simplifies the tax code into two brackets, lowers rates, includes substantial exemptions to help lower-income Kansans, reduces statewide property taxes, and repeals the state tax on Social Security,” they stated. “It contains minor adjustments to ensure the bill is quickly signed into law.”

Neither statement specified whether the deal includes an accelerated termination of the state’s 2% sales tax on groceries, which is currently set to be eliminated on January 1. Masterson previously indicated that the deal would not hasten the elimination of the food sales tax.

Historical Context and Legislative Actions

Previous Vetoes and Votes

In May, Kelly vetoed the last of three comprehensive property, sales, and income tax bills sent to her in 2024. The Kansas tax bill passed with bipartisan support in both the Senate and the House. The vetoed bill and the new compromise would eliminate the state’s income tax on Social Security benefits, saving Kansans between $120 million and $152 million annually.

Details of the statewide property tax changes were not disclosed. Still, the last vetoed bill proposed increasing the exemption from property taxes tied to the statewide school finance levy from $42,000 to $100,000. Additionally, it would have reduced the 20-mill state property tax for K-12 public schools.

The vetoed bill also proposed raising the standard deduction and personal exemption on state income taxes and lowering the top income tax rate from 5.7% to 5.57%. The second income tax rate would have been set at 5.2% instead of 5.25%. The statements did not specify the new rates under the compromise proposal.

Kansas Leaders’ Response

Senate Minority Leader Dinah Sykes, D-Lenexa, acknowledged the compromise’s imperfections but recognized its potential benefits. “While this proposal is not what we fully wanted, in the spirit of compromise, it moves us forward. Senate Democrats will continue to fight for more property tax relief and child care relief, things we know our constituents truly want and need.”

Senator Tom Holland of Baldwin City introduced a plan on Wednesday to reduce residential, commercial, and agricultural property taxes by about $190 million annually. His proposal included the Social Security exemption, a child and dependent care tax credit matching the federal credit, and eliminating the state sales tax on groceries by October 1.

GOP Criticism of Vetoes

Hawkins and Masterson claimed restricted the Legislature’s ability to implement income and property tax relief this year. They advocated for returning a significant portion of the state’s cash surplus, estimated at $2.5 billion in the general treasury and $1.7 billion in a rainy day fund, to taxpayers.

“On Tuesday,” they stated, “we will act swiftly to pass this compromise and look forward to resuming our efforts to pass additional tax relief when we return in January.”

Key Takeaways

  • Compromise Reached: A tax reform compromise has been agreed upon by Governor Laura Kelly and Republican leaders.
  • Two-Rate System: The bill proposes transitioning to a two-rate personal income tax structure.
  • Special Session Agenda: The session will also discuss economic incentives for relocating sports teams to Kansas.
  • Property Tax and Social Security: The compromise includes provisions to repeal the state tax on Social Security and reduce property taxes.
  • Previous Vetoes: Governor Kelly’s prior vetoes of tax bills were noted as obstacles to earlier tax relief efforts.
  • Future Relief Efforts: The proposed changes aim to provide significant tax relief while maintaining state investment capabilities.