Gov. Laura Kelly vetoed major tax legislation Monday ferociously advocated by Republicans to trim income tax obligations of multinational corporations and wealthy individuals, while shrinking the sales tax on food and broadening the sales tax on nonresident internet businesses.
The Democratic governor repeatedly denounced Senate Bill 22 after it cleared the House 76-43 and the Senate by a 24-16 margin. Lobbyists with three business organizations, including the Kansas Chamber, immediately called for an override of Kelly’s veto. The governor said she was confident GOP legislative leadership couldn’t find 84 votes in the House and 27 in the Senate for an override.
Kelly used her authority for the first time as governor to thwart a bill capable of reducing state revenue by an estimated $500 million over three years.
“It would throw our state once again into a self-inflicted budget crisis, diminishing all the investments we’ve worked so hard to rebuild and restore,” she said at the Capitol. “It would put our future at risk once again in order to give significant tax breaks to entities who need them the least, while continuing to leave working families behind.”
Senate President Susan Wagle, a Wichita Republican, said the bill would have prevented unintended tax increases on business and individuals created by a federal law signed in 2017 by President Donald Trump. She said Senate Bill 22 was important because it lowered the food sales tax rate in Kansas — among the highest in the nation — by 1 cent on the dollar.
“Laura Kelly showed us how little her words mean,” Wagle said. “With the veto of Senate Bill 22, Gov. Kelly broke her campaign promise of no new taxes and her commitment to decrease the sales tax on food.”
House Minority Leader Tom Sawyer, D-Wichita, said he commended Kelly “on her bravery in the face of immense pressure, and for protecting our state. This veto was necessary to ensure economic recovery and sustainability in Kansas.”
Kelly was elected in November and took office in January while pledging not to repeat “reckless” tax policy decisions of Gov. Sam Brownback, who resigned in 2018. During a news conference, Kelly said she would consider alternative tax bills during the 2019 session if they were revenue neutral.
Income tax provisions woven into Senate Bill 22, tied to a projected cash tax windfall to the state treasury because of the domino effect of changes at the federal level, were developed by a special Senate committee chaired by Wagle.
The House included adjustments to Kansas’ sales tax, including a potentially flawed amendment binding purchases at the 5.5 percent sales tax rate to products available for purchase with food stamps. The amendment authored by Rep. Ken Corbet, R-Topeka, could knock Kansas out of compliance with a multi-state sales tax accord and cost the state $18 million.
Kelly endorsed gradual reduction in the 6.5 percent sales tax on food and didn’t object to making certain sales taxes were paid by companies without a brick-and-mortar presence in Kansas.
She objected to tax-avoidance pieces delivering about $150 million to businesses in Kansas. The largest beneficiaries would be multinational corporations, including Cargill and Seaboard, eager to repatriate foreign income at a reduced federal tax rate and without paying Kansas income tax.
The bill also would decouple the state and federal tax codes in a manner incentivizing no more than 15 percent of individual filers in Kansas to take advantage of the new, larger standard deduction on federal tax forms and continue itemizing deductions for purposes of paying state taxes. This piece of the bill would cost the state $50 million to $60 million annually.
Senate Majority Leader Jim Denning, R-Overland Park, said the governor ignored an opportunity for bipartisan compromise by turning to the veto “because she doesn’t like 25 percent of the bill.”
In doing so, Kelly compared Senate Bill 22 to the ill-fated decision in 2012 by Brownback to sign a bill slashing state income tax obligations of 330,000 business owners and lowering individual income tax rates. The law strangled state revenue as the Kansas economy sputtered, saddling Brownback with years of budget problems. In response, the state’s sales tax was raised twice, $2 billion was swept from the highway program and government borrowing ballooned.
The Brownback tax program was repealed in 2017 and state revenue rebounded to offer the 2019 Legislature with cash to make targeted investments.
“We should not squander the surplus. We should be prudent,” said Senate Minority Leader Anthony Hensley, D-Topeka.
House Majority Leader Dan Hawkins, R-Wichita, said Kelly was guilty of “denouncing responsible legislation stopping a tax hike, calling it ‘Brownback 2.0.’ ” Hawkins said Kelly didn’t have standing with Kansas voters to veto the tax bill, because she “wasn’t elected in a landslide and doesn’t have a mandate.”
This article was originally published on The Topeka Capital-Journal website, here.
Paid for by Senate Democratic Committee, Will Lawrence, Treasurer