Kansas Hikes Spending, Cuts Business Taxes

Published July 1, 2007

Kansas legislators approved a 10 percent spending hike and targeted tax cuts as their legislative session ended May 2. This is the second year spending growth has been close to $500 million in the state’s general fund, and general fund spending passes the $6 billion mark for the first time.

Kansas legislators are in the second year of a three-year mandate from the Kansas Supreme Court to increase state school spending by $852 million. This year’s increase totaled $194 million. Kansas started the 2007 fiscal year with a $734 million cash balance.

State Sen. Tim Huelskamp (R-Fowler) criticized the spending growth by comparing legislators and Gov. Kathleen Sebelius (D) to drunken sailors.

“One hundred sixty-six drunken sailors would have done better than Governor Sebelius and her Legislature,” Huelskamp said. He noted lawmakers approved spending $500 million more than projected revenues. “In my 11 years in the Legislature, 2007 certainly qualifies as the most expensive session in state history.”

Business Tax Cuts

On the plus side for taxpayers, sizable business tax cuts were enacted, enabled in part by drawing down the surplus in the unemployment insurance tax fund by $175 million during the next two years. The bill reduces unemployment insurance taxes in Kansas by at least 40 percent, with larger reductions for some employers.

About $35 million in additional tax cuts were also enacted. The state is starting to phase out the business franchise tax and raise the initial threshold on this net asset tax from $100,000 to $1 million.

Some Subtle Increases

In addition, some Social Security payments will be exempted from the Kansas personal income tax.

Currently, government pensions are tax exempt in Kansas, but private pensions and Social Security payments are taxable. The threshold for the Social Security tax break for 2007 will be $50,000, rising to $75,000 next year.

A small increase in the state’s homestead exemption and a larger rise in the earned income tax credit were also added.

“Kansas businesses have been growing and creating jobs, and we want to continue that progress,” Sebelius told reporters. Because of that growth, state revenues have been growing, as have state financial reserves.

Concerns Over Spending

“Based upon listening to our members … they seem to be pleased” with the 2007 session, said Cliff Sones, president of the Wichita Independent Business Association.

However, Sones said he was worried about the spending growth. So did his Topeka Independent Business Association counterpart, Ken Daniels, who warned on his Web site (http://www.kssmallbiz.com), “You simply can’t sustain spending in excess of personal income. Some day we will need to pay the piper.”

Daniels said that despite the spending growth there were some good steps taken this year to improve the Sunflower State’s fiscal climate.

Karl Peterjohn ([email protected]) is executive director of the Kansas Taxpayers Network.