Kansas House approves plan to boost sales, cigarette taxes after Brownback's budget warnings

Economic Indicators Associated Press

Republican leaders pushed a new plan for raising taxes through the Kansas House early Friday morning, hours after top aides to GOP Gov. Sam Brownback warned them that failing to erase a budget deficit risked funding for universities and invited a downgrading of the state's bond ratings.

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Legislators in past years backed the GOP governor by slashing personal income taxes in an effort to stimulate the economy, but those policies contributed to a budget deficit that ballooned this year.

Brownback was forced Thursday to publicly plead with Republican legislators to increase the state's sales and cigarette taxes to balance the next state budget. His pitch — and his aides' warnings that he would otherwise have to take drastic action early next week — prompted GOP lawmakers to tinker with a plan that had failed early Thursday in the House by a wide margin. They considered a package of two bills.

"Time's running out," said Republican Rep. Rick Billinger, of Goodland. "We can't go any longer."

The two bills together would raise $384 million during the fiscal year that begins July 1. Even with the new revenues, Republicans who drafted the plan said Brownback might have to cut up to $50 million in spending.

One measure raises the state's sales tax to 6.5 percent from 6.15 percent. The House approved it early Friday, 63-44, sending it to the Senate for a vote later in the day.

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The other measure was approved Sunday by the Senate and includes an increase in the cigarette tax of 50 cents a pack, to $1.29. It also includes a modest increase in taxes for business owners and farmers, at a level Brownback would accept, rather than a more aggressive proposal sought by some GOP lawmakers.

The 63-45 vote for the bill came less than two hours before sunrise Friday. GOP leaders were using a procedural maneuver to keep it from going to Brownback immediately, waiting to see how the Senate's vote on the other bill turned out.

The Legislature's annual session this year is the longest in state history at 113 days because of Republicans' deep divisions over raising taxes.

"You've just got to act," Brownback said during the Thursday meeting of GOP lawmakers. "I'm pleading with you, really, to just one more time, just get in the saddle."

Brownback's budget director, Shawn Sullivan, said that if lawmakers didn't increase taxes, one option for the governor was vetoing state universities' operating funds and allowing them to use tuition dollars to pay staff in the short-term. Another option was across-the-board cuts that would cost public schools $197 million in state aid.

Secretary of Administration Jim Clark warned that bond rating agencies would likely respond negatively to budget uncertainty.

But critics accused Brownback and his aides of using potential cuts for schools, universities and programs to coerce Republicans.

"He used it as a tool to force people to do things that are bad tax policy," said Democratic Rep. Jim Ward, of Wichita.

Other states have seen Kansas's experience as a cautionary tale. In February, when South Carolina Gov. Nikki Haley outlined proposals for slashing income taxes, she said, "We are not doing what Kansas did." In Nebraska, the unicameral Legislature flirted with following Kansas in 2013 but rejected the idea in favor of a tax study — which recommended against big tax cuts.

"Nationally, Kansas is not the model any state is looking to follow right now," said Joseph Henchman, a vice president at the Washington-based Tax Foundation. "What have you gained if you've cut taxes and the state becomes insolvent?"

Brownback argues that Kansas still has "pro-growth" economic policies if it preserves most of the income tax cuts enacted by legislators in 2012 and 2013, even if it raises sales and cigarette taxes to close the budget gap.

House Taxation Committee Chairman Marvin Kleeb, an Overland Park Republican, said: "I don't know whether we should apologize for giving tax relief and letting hard-working Kansans keep their dollars."

Democrats oppose increasing the state's sales tax, arguing it hurts poor and middle-class families.

They also contend that the state should reverse a key 2012 policy from Brownback that ended income taxes on the profits of 281,000 business owners and 53,000 farmers. Many Republicans agree it's unfair to allow business owners to pay no income taxes while the wages of their employees remain taxed.

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Associated Press writer Grant Schulte in Lincoln, Nebraska, also contributed to this report.

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Online:

House vote on bill with cigarette tax increase: http://bit.ly/1B7fng2

House vote on bill with sales tax increase: http://bit.ly/1KJSTUd

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Follow John Hanna on Twitter at https://twitter.com/apjdhanna and Nicholas Clayton at https://twitter.com/ClaytonNicholas