Legislators landed back in Topeka Wednesday, April 25, and we’re now in the throes of the veto session, which will end by May 11.
While few things have happened, there was one huge announcement: On Thursday, the joint conference committee on taxation announced a “deal” on its income tax proposals.
Of the six members on the conference committee, four agree on the plan they knocked out, but one representative and one senator disagree with it and will not sign the conference committee’s report, once typed up.
Each house can still approve the agreement and send it to the governor by a floor vote adopting the report, despite the two who won’t sign the agreement. We hope to receive all the facts by Tuesday (May 2), but here are the details I know, or at least think I know:
• It would reduce the three income tax rates to two, the top rate being lowered from 6.45 percent to 4.9 percent. I have no idea what happens to the lower bracket.
• I’m told the standard deduction stays the same, and itemized deductions are not being completely phased out.
• Folks who itemize will be allowed to deduct their charitable contributions and home mortgage interest, but real estate taxes become non-deductible.
I have no information on other itemized deductions, nor do I have any word on the Kansas modifications to federal adjusted gross income.
Gov. Brownback had proposed to grant businesses an exemption/deduction on their income, and the conference committee “deal” proposes to adopt that idea and completely phase out the income tax for about 190,000 businesses over five years.
I don’t know what constitutes income for those businesses, but the governor’s proposal exempted income reported on Form 1040 Schedules C (sole proprietorships), F (farmers), and E (partnerships, LLCs, Subchapter S corporations, and possibly all rental income).
Time will tell what the parameters of this exemption will be. My concern is the extent of the exemption and whether it will be restricted to business income. Business income is clearly defined in the Federal Tax Code, but nowhere do I find this nailed down yet.
Although I adopt the goal of getting taxes on businesses under control, this plan raises a second concern for me: While I would likely get a tax break myself, as I run a business (I’m an attorney), I wonder whether I ought to be totally exempted on paying income tax on my business income when my employees will be taxed on their W-2 income.
We’re told we are the “job creators” because we run the businesses and therefore ought not be taxed. But we’re also told the tax code ought not pick winners and losers—isn’t that what we’ll be doing? And what about winners and losers when the state exempted some pipelines from paying real estate taxes?
My third concern is the pressure this bill will put on property and sales taxes. Even though this plan preserves the planned 0.6 percent 2013 sales tax cut, I expect both property and sales taxes will in time have to be raised to meet essential state services. So what value is this masquerade for those businesses we’re trying to help?
I think I prefer paying income tax on money I actually make once I make it, as opposed to paying higher property taxes on my business building whether or not I make a profit in my business. How about you?
I’d also wait and see what happens before I’d reduce the business person’s tax to zero; and I’d call that conservative. Look before we leap.
NOTE: If you contacted me by e-mail me last week, I probably didn’t receive the email. My e-mail malfunctioned, so please contact me again.
You may e-mail me at: Brookens70@sbcglobal.net or write me at 201 Meadow Lane, Marion, KS 66861, or call me at 620-382-2133. You may also call me weekdays through May 11 in Topeka at 785-296-7636