IN THE NEWS

On a 13-9 vote, the House Taxation Committee passed the first major tax bill of the session, about three months earlier than when tax bills usually “grow legs..” Substitute for HB 2178. The bill quickly worked its way to the House floor and passed the House on a vote of 76 to 48 on Thursday morning. The bill represents a comprehensive fix by incorporating the following elements: would do the following, retroactive to January 1, 2017:

• Reinstates income taxes on LLC and S-corp businesses.
• Reinstates the third individual income tax bracket:
  • Bracket 1: Individuals earning <$15K, couples <$30K, taxed at 2.7%
  • Bracket 2: Individuals earning $15-50K, couples $60-100K, taxed at 5.25%
  • Bracket 3: Individuals earning >$50K, couples >$100K, taxed at 5.45%
• Removes scheduled income tax decreases (“Glidepath to Zero”)
• Reinstates deductibility of medical expenses at 100%.

The table below shows the changes to income tax brackets over the past twenty-five years. Column one shows the three tax brackets used in Kansas from 1992 to 2012.  Column two shows the creation of two tax brackets in 2012, while column 3 shows the proposed tax brackets in Sub for HB 2178. As you look at the table, you will notice the bill keeps the lowest tax rate the same as current law at 2.7%, and lower than prior to 2012. The return of the third bracket is set at 5.45%, which is higher than 

One aspect of the bill is that it applies taxes reactively to January of 2017. By making the bill effective for tax year 2017, the revenue to the state is estimated at $590 million for FY 2018 and $454 million for FY 2019. These revenue numbers are significant because the revenue estimates for FY 2018 show a $580 million shortfall.  This makes it critically important to generate enough revenue as soon as possible to fill the huge gap in the FY 2018 budget.  

I believe the bill offers real revenue reform by beginning to create a structurally balanced budget where expenditures and match revenue, and reduces our reliance on non-recurring revenues to fund state government. It keeps a portion of the 2012 income tax cuts in place. It closes the LLC loophole that has allowed certain businesses to avoid income taxes. And, it restores the medical exemption so our seniors and those with major medical expenses aren’t forced to pay more. All the while raising enough revenues to protect our schools and core functions. I voted yes on restoring sound fiscal policies in Kansas. 

ON THE FLOOR

HB 2049 enacts the Law Enforcement Protection Act, imposing harsher sentencing for crimes committed against police officers. This legislation affords protections to law enforcement officers that make daily sacrifices for the safety and security of us all.  I voted yes for the bill.  It passed 112-8.

HB 2067 would require anyone applying for an insurance agent license in Kansas to be fingerprinted as part of a background check for criminal history. The KS Bureau of Investigation (KBI) will perform the checks and only state officials could use the information to validate an applicant’s fitness to receive a license. I voted YES, it passed 85-38.

COMMITTEE WORK

Commerce, Labor & Economic Development - Livestream link

The committee held a fascinating briefing on rural economic development, with three presentations arranged by committee members:

• Hutch News: Hutch touted to House Commerce
• Nick Poels of Phillips County Economic Development
• Martha Slater Farrell and First Generation Video
• Chris Thomas, CFO of Northrock, Inc.

We also held a number of hearings on bills:

• HB 2168 creates the Ad Astra Rural Jobs Act, which authorizes a 20% income tax credit for investments in approved investment companies that create job opportunities in rural areas.       
• HB 2183 would require employers, upon request of an employee, to provide a statement to the employee showing all itemized deductions made from the employee’s wages each day that wages are paid.     
• Currently, local governments cannot enact any ordinance that requires an employer to provide leave from work, compensation for leave, compensation at a higher rate than the minimum wage, or any benefit other than what’s required by state and federal law. HB 2185 removes those prohibitions.

Taxation

The committee worked hard last week and this week to create and pass the tax bill discussed above. it’s time to restore revenue to our state because it cannot perform the basic functions required of it under the current funding mechanism. “Just” fixing the LLC tax break will only fix about 30% of the problem – reinstating the 3rd tax bracket and halting the “March to Zero” were the bulk of the revenue challenge. If this bill were to be signed into law “as-is” today, your income taxes would still be at least 1% lower than they were in 2012. 

Veterans & Military

Under current law, money raised from the sale of veterans’ benefit lottery tickets goes to the State General Fund (SGF). SGF money is then transferred to the Kansas Army and Air National Guard for educational assistance scholarships. The Kansas Commission on Veterans Affairs also receives money for state nursing homes, cemeteries and the enhanced service delivery program. HB 2196 would create two new funds, and money raised by the sale of veterans’ lottery tickets would go directly into those funds instead of the SGF and could not be transferred to SGF. From there, the funds would be distributed as under current law.

Under HB 2257, recipients of the Army Occupation Medal and the Navy Occupation Service Medal (and their spouses) could purchase new, distinctive license plates in their honor under this legislation. The creation of the plate would raise an estimated $72,300 for the State Highway Fund, before costs.

The committee met to discuss legislation (HB 2174) that would make a veteran eligible for the disabled veteran license plate if the veteran submits satisfactory proof to the director of vehicles that he or she has a disability, condition or impairment that is permanent in nature. Under current law, a veteran is only eligible for these special plates if he or she is entitled to compensation for a service-connected disability of at least 50 percent.