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Kansas Republican Gov. Brownback's tax plan ends mortgage deduction

 
 
Reply Fri 13 Jan, 2012 11:17 am
Jan. 13, 2012
Kansas Gov. Brownback's tax plan ends mortgage deduction
Brad Cooper and Mark Davis | The Kansas City Star

last updated: January 13, 2012 07:12:23 AM

TOPEKA — Gov. Sam Brownback on Thursday proposed a money-saving $14 billion budget for 2012-13 that he said would be a boon for Kansas businesses and taxpayers.

And since it’s 4 percent less than the current spending plan, it would leave some money in the bank — $465 million.

“If we didn’t learn in this last crisis that an ending balance was important, then we weren’t paying attention,” said Steve Anderson, the state’s budget director. “The budget’s all about fiscal stability, the tax plan is all about economic prosperity, and the two are married.”

A day earlier, Brownback unveiled a sweeping remake of the state’s tax code, slashing rates but also eliminating deductions many Kansans rely on to lower their tax bills. Home mortgage interest payments and contributions to charities, for example, would no longer be deductible.

Low-income Kansans also would lose the earned income tax credit that provides a tax refund even when they don’t owe taxes.

Brownback’s proposed business tax changes would leave more money in the hands of owners with the expectation that they would reinvest in Kansas companies, benefiting the local economy and ultimately the state’s tax collections.

“This is one of the avenues that we can have a direct and powerful impact, a meaningful increase in the pocketbook of every Kansan across the state,” Lt. Gov. Jeff Colyer told lawmakers during a joint meeting of tax committees from the Senate and House.

Critics, however, are complaining that the measures, if adopted, could hurt children, the poor and homeowners.

Statehouse Democrats already have targeted Brownback’s plans to eliminate the home mortgage interest deduction. They have cautioned about the prospects of less affluent Kansans picking up the costs of running government.

“We need tax fairness,” said House Minority Leader Paul Davis of Lawrence. “If we’re going to be shifting the burden of funding government from wealthy taxpayers, corporations and businesses onto working Kansans, that is wrong.”

Ends mortgage break

Under Brownback’s proposal, Kansas taxpayers would see lower tax rates.

The tax plan, developed with the help of conservative economist Arthur Laffer, moves the state from three individual income tax brackets to two. Laffer, the architect of President Ronald Reagan’s supply side economic policies, is expected to be in the Capitol next week to discuss Brownback’s plan.

It would reduce the upper-level tax bracket to 4.9 percent for taxpayers earning more than $15,000 individually and $30,000 for a married couple filing jointly. The current rate for anyone earning more than $15,000 ranges from 6.25 percent to 6.45 percent.

The lowest tax bracket for taxpayers making less than $15,000 would drop to 3 percent from 3.5 percent.

But the governor’s plan, which is billed as “revenue neutral,” relies on eliminating roughly two dozen tax breaks, including the deductions for home interest mortgage and charitable contributions.

The home interest deduction saves taxpayers on average $389 a year, while the charitable contribution donation saves an average of $243 a year.

The administration argues that deductions will mean less as the income tax decreases.

State officials also said only about a quarter of Kansas taxpayers itemize deductions, including about 159,000 taxpayers in Johnson and Wyandotte counties. The others claim the standard deduction.

Brownback’s proposal to end the deduction of mortgage interest is generating concern from homeowners and the housing industry.

The tax savings are greatest in the first years after taking out a loan and often figure into how much home a buyer can afford.

“One of the things you count on when you buy a home is you have that tax advantage,” said Bar Kaelter, who is still moving into the Leawood home he and his wife bought this month.

Kaelter wondered how much the lost tax deduction would hurt the homebuying ability of low-income Kansans. Housing markets already suffer from too few buyers.

The weak housing market also has been a central concern of the Federal Reserve in its efforts to boost the slow economic recovery. Fed policies have slashed mortgage rates to historic lows, but area lenders said home prices continue to slide under the weight of too many foreclosed homes in search of buyers.

Eliminating the deduction could hurt Kansas’ economy too, said Sara Corless of the Home Builders Association of Greater Kansas City.

Homebuilders are ready to discuss a state tax policy that “promotes growth and recognizes homeownership as the key to our state’s economy,” Corless said. “Mortgage interest deduction is certainly a cornerstone of homeownership, and it strengthens communities and it puts people to work.”

Cuts tax credits

Kansans also would lose the earned income tax credit, which largely benefits the working poor by providing a refundable tax credit.

The proposal is drawing fire, even though the administration points out it would offset the loss by doubling the standard deduction for the head of a household to $9,000.

Critics contend that eliminating the earned income tax credit would hurt children because it helps parents pay for housing, utilities and food.

“Elimination of the earned income tax credit would have a devastating impact on Kansas children and families,” Kansas Action for Children president Shannon Cotsoradis said in a statement Thursday. “Gov. Brownback made a commitment to reduce childhood poverty. Doing away with the (tax credit) flies in the face of that.”

Studies estimate that if the tax credit were eliminated, an additional 4,000 children would fall into poverty, the group said.

The Brownback administration said it intends to help the neediest people. It proposes using part of the money gained by eliminating the credit — about $60 million — to fund other social programs and match federal aid for the poor.

The administration argued there is abuse of the earned income tax program and has circulated a list of a half dozen national instances of fraud to make its case, contending its approach is a better way to get money into hands of the people who need it the most.

“We’re going to provide more efficient, more accountable and more targeted benefits to the low-income people of the state,” said Revenue Secretary Nick Jordan.

Many businesses would owe no state taxes under the governor’s plan.

Brownback proposes eliminating taxes on the income of 191,000 small businesses owned by sole proprietors, companies organized as S corporations and small groups that form limited liability corporations.

Kansas doesn’t tax these businesses directly. It allows them to pass their profits directly to their owners. The owners then pay individual income taxes on the earnings. Businesses that are incorporated pay taxes directly.

Brownback said eliminating taxes on pass-through businesses would attract new business and investment to the state, boosting the economy and ultimately state tax coffers.

The tax cut would clearly help the owners of these businesses.

“It’s huge. This is a huge deal to them,” said Kent Eckles of the Kansas Chamber of Commerce.

Eckles said the owners would be able to reinvest their tax savings into the businesses. They also could invest the money in other ventures or spend it in other ways. He said the low-tax business environment would help Kansas’ economy by attracting business and investment.

“Businesses go where the tax climate is favorable. It isn’t favorable in Kansas,” Eckles said.

A tax incentive for small businesses is a good idea, but eliminating the tax on their income may be too much, said Bernie Koch, executive director of the Kansas Economic Progress Council, a group made up of chambers of commerce, businesses, trade groups and others.

“It could be a substantial hit on the state general fund in a year,” Koch said.

Koch said the council has previously opposed eliminating individual income taxes for similar reasons.
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BumbleBeeBoogie
 
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Reply Fri 13 Jan, 2012 11:21 am
@BumbleBeeBoogie,
In Kansas, Gov. Sam Brownback puts tea party tenets into action with sharp cuts
By Annie Gowen - Washington Post
December 21, 2012

TOPEKA, KAN. — If you want to know what a Tea Party America might look like, there is no place like Kansas.

In the past year, three state agencies have been abolished and 2,050 jobs have been cut. Funding for schools, social services and the arts have been slashed. The new Republican governor rejected a $31.5 million federal grant for a new health-insurance exchange because he opposes President Obama’s health-care law. And that’s just the small stuff.

A new “Office of the Repealer” has been created to reduce the number of laws and regulations, and the Repealer is canvassing the state for more cut suggestions.

In the upcoming legislative session, Gov. Sam Brownback (R) plans to roll out proposals to change the way schools are funded, taxes are levied and state pensions are administered.

A year after voters vaulted hundreds of tea party candidates to power in Washington and in state capitals, the movement’s goals are being pursued aggressively in states such as Wisconsin, Ohio and Texas.

But in Kansas, as nowhere else in the country, tea party fervor is reshaping government. The same political forces of the Republican Party driving the confrontation over taxes and spending in Washington are now completely in charge in Kansas.

The GOP now controls the state’s House of Representatives with the biggest majority in half a century. Emboldened by this power shift, Brownback — the state’s former two-term U.S. senator — has embarked on his overhaul at a breathtaking pace.

“It’s a revolution in a cornfield,” said Arthur Laffer, the 71-year-old architect of supply-side economic theory and former economic adviser for President Ronald Reagan who is now working with the governor. “Brownback and his whole group there, it’s an amazing thing they’re doing. Truly revolutionary.”

Brownback, 55, declined to be interviewed for this article but has said he wants to turn his small farming state into a national showcase for the virtues of limited government.

“The states are to be the laboratory for democracy,” he said recently at a dinner at the Kansas Policy Institute, a think tank in Wichita. “Why not here and why not us and why not now?”

The governor has said his main concerns are creating jobs, cutting taxes and bringing new businesses to the state, which has been losing population to domestic migration over the past decade and ranks near the bottom in private-sector job creation.

“We cannot continue on this path and hope we can move forward and win the future,” he said in the Wichita speech . “It won’t work. We have to change course, and we’re going to have to be aggressive about it or we are doomed to a slow decline.”

Brownback has shown little patience with anyone who might stand in the way of the revolution. Nine moderate Republicans in the state Senate who crossed Brownback face primary challengers in 2012. His administration has acquired a reputation for engaging even the smallest critics. The governor’s aides grabbed national attention after they went after a teenager who tweeted derogatory comments about Brownback during a visit to the statehouse. The governor later apologized for their behavior.

Moderate no more

For years, Kansas has been one of the most reliably Republican states in presidential elections. In the past 100 years, only three Democrats have won there — Woodrow Wilson, Franklin D. Roosevelt and Lyndon B. Johnson. In 2008, John McCain beat Barack Obama 57 percent to 41 percent, winning all but three of the state’s 105 counties.

But at the state level, Kansans have routinely elected moderate Republican governors. More recently, the state elected Democrat Kathleen Sebelius, now President Obama’s secretary of health and human services.

Then came Brownback.

For most of his long political career, Brownback has been an unabashed social conservative and deeply religious man. He converted from evangelical Christianity to Roman Catholicism in 2002. He often speaks about how a brush with cancer deepened his religious views and influenced his political convictions.

During his tenure as governor, Brownback has pushed for stricter abortion controls, the expansion of faith-based programming and initiatives that promote healthy marriage and fatherhood.

“For 40 years, we had this moderate Republican-Democratic coalition running the state, and suddenly it’s pretty much gone,” said Burdett Loomis, a political science professor at the University of Kansas.

Brownback defied even the GOP-led state legislature in cutting funding for the arts, which left Kansas as the only state without a state-funded arts commission. And his plan to shutter nine social service offices around the state created a firestorm and sent several localities scrambling for their checkbooks to keep the offices open.

He has been so single-minded in his pursuit of smaller government that some have accused him of being an autocrat. T-shirts emerged with the slogan “Welcome to Brownbackistan.”

While many in the tea party movement have praised his cost-cutting, they also wonder whether Brownback, who briefly sought the GOP presidential nomination in 2008, is using Kansas as a stage for another­­ run for the White House.

“We’re pleased with the cuts he is making,” said Lynda Tyler, 48, a Wichita stockbroker active in the tea party. “I hope the cuts he makes are able to last. For some reason, I don’t know why, I have this feeling he’s going to come in slashing and burning and he’s doing it so he can point back and say, ‘See what I did for Kansas? Maybe I can do it for the country.’ ”

The Kansas Policy Institute, where Brownback delivered his recent speech to warm applause, is funded by the billionaire brothers Charles and David Koch.

The Kochs, whose oil and energy conglomerate is based in Wichita, have been among Brownback’s biggest supporters since he first ran for Congress in 1994 and have been boosters of the tea party movement through their group Americans for Prosperity. The Koch family, Koch Industries and Koch employees — there are 2,600 in the state — have contributed at least $143,000 to Brownback’s campaigns over the years, according to federal and state election records.

Critics say that the Kochs have too much say about what is happening in Kansas. Brownback appointed one Americans for Prosperity consultant to be his budget director and hired the wife of another leader as his spokeswoman.

The Kochs “have been handed the keys to the governor’s office,” said state Senate Minority Leader Anthony Hensley, a Democrat. “They have a tremendous amount of influence in Kansas politics and nationally.”

Melissa Cohlmia, the director of corporate communication for Koch Cos. Public Sector, said the Kochs have given generously to Brownback because they share similar ideals related to free-market economics and fiscal responsibility.

Bill Kassebaum, a Republican former state representative and son of former U.S. senator Nancy Landon Kassebaum (R-Kan.), said Brownback has struck a tone that, so far, has resonated with many Kansans.

“I would say the majority of voters are happy with it,” Kassebaum said. “I don’t think the realities or consequences of pursuing these policies have kicked in yet. When they do it’s going to be the age-old question, ‘What do we want as far as services from the government?’ ”

“I think a lot of people don’t realize the role government plays in their lives until it’s gone,” he added. “They may not be happy with what’s left.”

In a windswept corner of the prairie, Julie Britton is the economic development director of tiny Rawlins County — population 2,519. She voted for the governor. But she is also a member of an arts group that works in the isolated rural counties that lost $9,000 in cutbacks. As a result, her town will have just two shows this year, a guitar concert and a children’s performance of “Chicken Little.”

“We all expected him to have to make some changes,” she said. “We didn’t expect for him to make as many drastic changes as he has made.”

Aggressive cuts

One of Brownback’s top lieutenants was Robert Siedlecki Jr., a former legal adviser on faith-based initiatives in the George W. Bush administration. Brownback hired Siedlecki this year to be Kansas’s secretary of social and rehabilitation services.

Siedlecki cut dozens of jobs, closed offices, doubled the size of the team that investigates welfare cheats and rewrote state contracts to encourage providers of state services to promote pro-fatherhood and pro-family ideals. He also hired a Florida pastor, Rick Marks, to head the state’s new healthy-marriage initiative. Marks has been described by some as the state’s “marriage guru.”

After less than a year on the job, Siedlecki resigned this month. But some of his legacy remains.

To help fund its new fatherhood initiative, Kansas has shifted $600,000 from an Early Head Start program in Riley County, which has double the state’s percentage of residents in poverty. Head Start officials said they already have strong fatherhood programming in place and that they would rather have used those funds to get children off the waiting list for day care.

“Dr. Marks — we have a ‘marriage guru’ now — came out to our program, and he was shocked at all the things we do at Head Start,” said Korey Hensley, the director of Heartland Early Education in Salina. “He said, ‘Oh, you do family preservation!’ I said, ‘Absolutely.’ ”

As the opening session of the state legislature approaches in January, officials are preparing for another bruising budget battle. Brownback plans to revamp the state’s tax system with cuts to the income tax rates and plans to change the 20-year-old funding formula for schools, a move that opponents fear could benefit wealthier districts.

“It will be a bloodbath,” said state Sen. Laura Kelly, a Democrat. “There’s going to be a raft of things that will come, but details are lacking. It’s all been so clandestine.”

For his part, Brownback sounded a triumphant note during his recent speech in Wichita.

“We’ve started our reforms,” he said. “It’s going to take some time. We’ve gotten off to a good start.”

Staff researcher Magda Jean-Louis contributed to this report.
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