As you can see the difference is narrow and compromise will be achievable. Once a compromise is reached
,I can see the difference being reduced to around $60 million. This would be the Senate accepting the House positions on remaining items and resulting in a $80 - $100 million dollar budget cut from the Governors initial recommendation.
Shift From Taxing Productivity To Taxing Consumption
Now that the budgets are close we can finish up the tax policy for the next several years. The shift in Kansas tax policy began January 1st of this year. Effective January 1st personal income tax rates were reduced sharply and combined into two brackets from three brackets. This will result in about a $600 million income tax cut to Kansas workers. Non-wage income in LLC's, Sub Chapter S corporations, and other similar tax styled partnerships will pass through and not be taxed. This will result in small business owners being able to invest an additional $200 million in their businesses to grow their businesses and create new jobs. The table below shows the 2012 tax rates and brackets being reduced and flattened out in 2013.
The House and Senate tax plans approach paying for the 2013 tax cut of $800 million and future tax cuts differently. Both raise the necessary tax revenues to have a stable budget, fund essential services, and continue with future tax cuts. Much discussion has surrounded the 6.3% sales tax rate. The sales tax rate is scheduled to automatically roll back to 5.7% on July 1, 2013. The Senate tax plan relies on keeping the rate at 6.3% going forward. The logic here is we want to move away from taxing productivity to taxing consumption. To accomplish this we need to keep the sales tax rate at 6.3%. The difference between 5.7% and 6.3% is commonly referred to now as the "6/10th sales tax difference."
The House tax plan which was discussed at a joint meeting on Thursday takes a different approach to raising revenue. Although the amount of revenue raised is almost identical to the Senate plan the House accomplishes through a combination of sales tax and modification to income tax drivers. The House plan proposes to reduce sales tax from 6.3% to 6.0%. We will call this the "3/10th sales tax difference." In addition, the House plan further proposes to roll back the standard deduction and phase out Charitable deductions based on declining tax rates effective January 1, 2013.
The table below shows a side by side comparison. The amounts are my estimates and should be considered just that, estimates.
As the above table demonstrates, the House and Senate plans approach tax policy differently. The sunlight on the plans indicate that the amount of tax revenue needed to have a stable budget, fund essential services, and continue with future tax cuts are very close between the Senate and House tax plans. The Senate plan relies more on a consumption tax with proposing to keep the sales tax at 6.3%. The House plan relies less on consumption tax with proposing to reset sales tax at 6.0% and more on traditional income tax variables. The Senate and Governor prefer emphasis on moving towards consumption tax. The House prefers a combination. The tax conference committees will come up with a compromise they think will pass both of our chambers and meet with the Governors approval.
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