Kansas collects slightly more tax than expected in July, ending streak of monthly shortfalls

Kansas collected slightly more in taxes than anticipated in July, breaking a streak of big monthly shortfalls that intensified the debate over massive personal income tax cuts engineered by conservative Republican Gov. Sam Brownback.

The state Department of Revenue reported Thursday that the state took in $408.6 million in taxes during the month, the first of the state's 2015 budget year. State officials and university economists had projected collections of $407 million, and the surplus for the month was $1.6 million, or 0.4 percent.

As slight as it was, it was a sharp break from the past three months. Tax collections in April, May and June were a total of $334 million short of expectations, a gap of 5.6 percent. The state still ended its 2014 budget year with $434 million in cash reserves, but continued monthly shortfalls could cause the cushion to melt away before June 2015, forcing lawmakers to revise the current budget or tax policy next year.

"Back on track!" state House Appropriations Committee Chairman Gene Suellentrop, a Wichita Republican and a Brownback ally, declared in an email.

Brownback pushed successfully for income tax cuts in 2012 and 2013 and argues that they're stimulating economic growth. But critics contend the tax cuts are wrecking the state's finances, endangering aid to public schools and funding for higher education and social services.

The governor faces a tougher-than-expected re-election race this year because of questions about the tax policy he's championed. Democratic challenger Paul Davis has proposed freezing tax policies in January 2015, preventing some future cuts from taking effect.

"This news brings us no closer to solving the problem Sam Brownback created with his economic experiment," Davis said of July's slight revenue surplus.

And Duane Goossen, a former budget director for both Republican and Democratic governors, said revenues need to exceed expectations — to make up for the previous three months' shortfall — and to stabilize the budget. But he said that meeting revenue targets could allow the state to avoid spending cuts during the next 12 months, but not after that, with cash reserves depleted.

"The budget cutting is coming," Goossen said.

Brownback's administration contends that revenues fell short of expectations from April through June because of how investors reacted to uncertainties about federal fiscal policies at the end of 2012. The department argued that investors declared capital gains early, in 2012, to avoid potentially higher taxes on them in 2013, and the effects showed up with their income tax filings in the spring.

The Department of Revenue said income taxes withheld from workers' paychecks, at $168.2 million for the month, were slightly higher than the $167.6 predicted. Agency spokeswoman Jeannine Koranda said the data vindicated the department's explanation of events.

"More Kansans are working and earning more money, helping grow the state's economy," Revenue Secretary Nick Jordan said in a statement. "We are cautiously optimistic about these results but pleased to see further evidence that Kansans are getting back to work."

Brownback's critics argued that the revenue shortfalls showed that the state underestimated the effects of his tax cuts, particularly the elimination of personal income taxes altogether for the owners of 191,000 businesses. They said the cuts — worth a projected $4.1 billion through mid-2018 — were so steep that no boost in the economy will generate offsetting revenues to avoid massive budget problems.

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Online:

Kansas Department of Revenue: http://www.ksrevenue.org/index.html

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