Kansas Legislature overrides veto of income tax cut bill

Bloomberg News

Kansas will pursue further income tax rate cuts after the legislature overrode the governor's veto of a bill that ties future reductions to inflation-adjusted revenue increases.
 
In her April 9 veto message, Democratic Gov. Laura Kelly said Senate Bill 269 could cost the state as much as $1.3 billion a year, noting that "as soon as the state sees an uptick in revenue, taxes will be automatically cut regardless of any other economic factors or policy and budgetary considerations."

"Make no mistake, should this bill become law, it will put the state back on the path toward the failed Brownback tax experiment: the four-day school weeks, the budget cuts, and the crumbling roads and bridges that came with it," she said.   

Tax cuts enacted under former Gov. Sam Brownback led to big fiscal problems and were eventually rolled back by lawmakers. 

The Republican-controlled legislature overrode Kelly's veto on Thursday with its leaders calling the bill "a sensible way to return tax dollars to Kansans." 

Starting in August, the state budget director will determine if the preceding fiscal year's individual and corporate income tax revenues exceeded their inflation-adjusted fiscal 2024 collections and if the budget stabilization fund balance equals at least 15% of the prior fiscal year's general fund tax revenue, according to a Tax Foundation analysis of the bill.

Meeting those conditions will trigger a reduction in the state's 5.2% and 5.58% individual income tax rates on an annual basis until they both fall to 4%, after which reductions in corporate income tax rates could occur.

The foundation called the measure "a prudent approach to ensure rate reductions phase in responsibly."

A previous tax cut's creation of "an evolving budget environment" was a factor in S&P Global Ratings' revision of the state's rating outlook to stable from positive last month.

S&P assigns Kansas its AA-minus issuer rating. Moody's Ratings assigns its Aa2 issuer rating with a stable outlook. Fitch Ratings assigns its AA issuer default rating with a stable outlook.

A law enacted last year shrank the number of individual income tax brackets to two from three beginning in tax year 2024, reduced the top rate to 5.58% from 5.7%, exempted Social Security payments from state taxation, and increased tax deductions.

The rating agency also cited "potential actions taken at the federal level that could create a weaker revenue revenue environment and budget pressure." That marked S&P's first state rating-related action spurred in part by federal policy uncertainty.