DALLAS – Kansas Gov. Sam Brownback will recommend extending a temporary state sales tax increase next month when he proposes a fiscal 2014 budget that reduces state spending.
Budget Director Steve Anderson said Brownback wants to use the revenue generated by extending the higher sales tax to whittle away at the personal income tax rate.
The state sales tax rate is set to drop to 5.7% from the current 6.3% on June 30, the final day of Kansas’s fiscal year. The rate was raised from 5.3% by the 2010 Legislature to compensate for a steep decline in state revenues but with the promise that it would expire as fiscal 2014 began.
The additional 0.6% is expected to generate $262.3 million in fiscal 2014 if it is extended, state officials said.
The 2010 rate increase of 1% included a permanent 0.4% sales tax dedicated to Kansas Department of Transportation.
The additional sales tax revenue Brownback wants would help compensate for an expected fall in state revenues of almost $1 billion resulted from income tax cuts enacted by the 2012 Legislature.
On Jan. 1, the top state income tax rate will drop to 4.9% from 6.45%. The measure also exempted almost 200,000 partnerships and other businesses from the income tax.
“What you’re going to see is a further reduction in the personal income tax rate,” Anderson said at a legislative forum in Topeka.
Brownback proposed a tax package in 2012 that linked revenue growth to an eventual elimination of the state income tax.
Under the plan, which failed in the Legislature, annual growth in revenue of more than 2% would result in a drop in the tax rate.
“I think that is a trigger we need to use,” Anderson said.
As a result of the 2012 tax cuts, state general fund revenues are expected to decline by $230 million in fiscal 2013 and $700 million in fiscal 2014.
The governor’s original tax package also included an extension of the temporary sales tax rate.
In October, Brownback said he would consider extending the sales tax for two more years if that would help lower the income tax rate. A lower income tax is a larger economic incentive than a lower sales tax rate, he said.
Anderson said he doubted predictions that the drop in revenue of more than $900 million over the next two years will require extensive budget cuts. He said Brownback will propose a budget for fiscal 2014 that cuts spending while protecting essential services.
“We don’t anticipate cuts near that amount.” He said. “I will leave that to the governor when we put the budget out in January.”
In July, Brownback used part of the state’s $466 million surplus from fiscal 2012 to make early payments on $24.7 million of state debt.
Fiscal 2013 is expected to end with a surplus of $470 million.
Kansas state debt is rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s.