DALLAS — Kansas would shift from reliance on the income tax for the bulk of state revenues to the sales tax in a plan Gov. Sam Brownback proposed to lawmakers.
Keeping the sales tax rate at 6.3% will provide the revenue needed to offset income tax rate cuts, Brownback said in his State of the State speech Tuesday at the opening of the 2013 Legislature.
The top income tax rate would drop to 3.5% from the current 4.9% in the Brownback proposal. The proposed income tax reduction continues a process that began in the 2012 Legislature with the lowering of the top rate from 6.45%.
The aim is to eliminate the income tax with regular reductions, Brownback said.
"Last year, the Kansas Legislature passed the largest tax cut in state history," he said. "Tonight, we are here to take another step on our path to no income tax."
The upper income tax rate would be reduced to 3.5%, with the lowest rate cut to 1.9% from 3.5%.
"This glide path to zero will not cut funding for schools, higher education, or essential safety net programs," Brownback said.
The sales tax rate is set to fall to 5.7% from 6.3% July 1. Keeping it at the current level would increase revenues in fiscal 2014 by $260 million.
Replacing the state income tax with sales tax revenue will allow Kansas to be more competitive with states that don't levy an income tax, Brownback said.
"This will create jobs and opportunities in our state that the current generation has left for Texas or Florida to find," he said.
"When I started as governor, we had the highest state income tax in the region, now we have the 2nd lowest and I want us to take it to zero," Brownback said.
"Look out, Texas," he said. "Here comes Kansas!"
The 2010 Legislature raised the sales tax rate to 6.3% from 5.3% as general fund revenues fell. Lawmakers included a provision to revert the rate to 5.7% at the beginning of fiscal 2014, with 0.4% permanently dedicated to Kansas Department of Transportation.
Extending the sales tax rate would break a promise by the lawmakers who approved the temporary increase, said Mike O'Neal, president of the Kansas Chamber and a former Kansas House speaker.
"We will oppose any effort to break that promise to Kansas taxpayers to justify government spending status quo," O'Neal said.
Brownback presented a two-year budget to lawmakers instead of the normal one-year spending plan.
The state will end fiscal 2015, the final year of his biennial budget, with an ending surplus of 7.5%. Brownback said.
"When I started as governor (January 2011), we began the fiscal year with $876.05 in the bank and a projected deficit of $500 million," he said.
"Working with the Legislature, we ended last fiscal year with a $500 million ending balance and we paid off all of our callable bonds," Brownback said.
In the Democratic response to Brownback's plan, Sen. Anthony Hensley, D-Topeka, said Kansas is nearly bankrupt due to "two years of failed policies, internal Republican Party bickering, and misguided values."
Kansas faces a "financial abyss," he said.
"The state of Kansas stands with its toes hanging over its own fiscal cliff," Hensley said.