Republican legislator led push to roll back 2012 business tax exemption
by Andy Marso, KHI News Service
Editor’s note: This is one in a series of articles by the KHI News Service previewing health-related issues that the Kansas Legislature will face in its upcoming 2016 session. It contains reporting that will appear in a story to be published in the winter edition of The Journal, a publication of the Kansas Leadership Center.
In some ways the 2016 Kansas legislative session will open much like the 2015 session: with legislators needing to approve midyear fund transfers and adjustments to balance the current year’s budget and then figuring out how to absorb a projected deficit for the coming fiscal year.
But the pending deficit for the fiscal year that begins in July will not be as daunting as the one legislators faced last session (about $170 million versus about $400 million). Last year the deficit was closed — temporarily — with a tax package that included reductions in income tax deductions and credits, a sales tax hike and a cigarette tax increase.
In the lead-up to the 2016 session, Gov. Sam Brownback has said repeatedly that more tax increases will not be necessary. The Kansas Department of Transportation sold a record $400 million in bonds earlier this month, leading to speculation that more money from the highway construction and maintenance fund will be transferred to shore up the state general fund.
That practice has become so routine that lobbyists at the Statehouse refer to the highway fund as the “Bank of KDOT.”
But there are limits to even that funding source, and new government expenses may be on the horizon.
Problems at Osawatomie State Hospital have threatened federal reimbursements at that facility, one of two in the state for Kansans with severe and persistent mental illness. And legislators still are awaiting a Kansas Supreme Court decision on school funding that could require them to appropriate hundreds of millions more.
Senate President Susan Wagle and other legislators have predicted a short session, with Wagle telling a group of fellow Wichita Republicans that “taxes will not be on the table.”
But another Wichita Republican, Rep. Mark Hutton, said that’s not the case.
“Absolutely not,” Hutton said in a recent phone interview. “I think there’s a lot of people that are going to push back on any more money from KDOT, and there’s going to have to be a discussion about either additional cuts or more (tax) revenue. We all know that’s the equation.”
Hutton’s opinion matters because of the role he played in last year’s tax debate, which extended the session to an unprecedented 114 days.
Rolling back the 2012 cuts?
Hutton rose to prominence last session when he offered a plan that would have rolled back the pass-through business tax exemption in Brownback’s signature 2012 tax plan.
Until that day, Hutton was basically a face in the crowd — a generally conservative Republican in a generally conservative Legislature. But he believed the fairest way to balance the budget and fund state government was to restore some of the business tax. And as a member of the House Taxation Committee, he felt obligated to offer solutions.
Rep. Marvin Kleeb, a Republican from Overland Park who chairs the tax committee, voted for the 2012 tax plan but said he knew disagreement over its value would have to be hashed out publicly before last session’s tax negotiations could begin in earnest.
Rep. Steven Johnson, a Republican from Assaria, said Hutton showed leadership in the way he started that conversation.
“He was willing to be the first one to step out,” Johnson said. “He studied the data, he knew the state, he knew the impact and he knew the issue from being a participant in the real world, from having a small business and having a large business.”
The tax committee passed Hutton’s plan, but getting enough votes in the full House proved more difficult.
As the session dragged on with no tax and budget solution, the House split into several factions:
• Far-right Republicans who would accept no tax increases.
• Republicans slightly left of them who were open to new tax revenue as long as it didn’t come from income taxes.
• A group of Republicans coalescing around Hutton who believed income tax should be part of the solution.
• A group of moderate Republicans who believed the 2012 plan was a mistake from the beginning and rolling it back should be the entire solution.
• Democrats who were largely content to let the Republican supermajority fight it out.
Hutton and Johnson worked to assemble a plan that combined several tax elements, including a partial rollback of the 2012 income tax cuts. It garnered 27 House votes, which was more than other plans but far short of the 63 needed.
Hutton said his coalition tried to compromise, but the Republicans to their right wouldn’t budge on the income tax and the moderates did not want to propose a plan with more income tax just to see it shot down in the Senate or vetoed by the governor — a threat Brownback and members of his administration had made.
As July approached and it looked as though the new fiscal year might begin without a plan to fund government, Brownback pleaded with Republicans to raise other taxes to avoid consequences like the shuttering of state hospitals or the loss of all state funding for colleges and universities.
After a late night of negotiations, Hutton and those who voted for his plan agreed to lend their votes to the Republicans on their right for a sales tax-heavy plan.
Hutton announced the agreement to reporters with a tone of resignation.
“We’ve kind of hit a tipping point where if we keep pursuing this, we’re going to hurt people — the people of Kansas, the very people we were working hard to get some equity to and some parity for on the tax policy,” Hutton said.
The path forward
Hutton’s group took heat on social media for “caving” under pressure from the governor and legislators bent on preserving the business tax exemption.
But in an interview last fall Hutton said he did not regret the vote, even though the tax plan that passed proved to be a very temporary budget fix.
“If people want to say I caved and backed up on the whole business exemption thing, then I guess they can say that,” Hutton said. “I can honestly say it was a very hard decision, but it was one that I made with a clear conscience. I did it, maybe not in the best long-term for Kansas, but it was certainly the best decision for the short term. Sometimes in politics that’s what you get.”
He said he also stood by an editorial he wrote for the Wichita Eagle just after the tax vote about the political considerations he thought got in the way of having an open, honest tax debate.
Several moderate Republicans, in particular, took issue with the way the editorial characterized them, saying they were motivated not by politics but by the desire for a more long-term budget fix.
Hutton said he was not sure whether he would make another attempt to bring people together on a plan to roll back the business tax exemption in the coming session. But he said it would continue to be an issue of debate as long as the state’s budget crisis persists — and possibly even if the budget picture improves.
“The issue has certainly not gone away,” Hutton said. “There remains a large contingent of people that believe it’s not just a revenue issue; it’s an equity or fairness issue. It’s an image issue for our state.”
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