Kansas governor follows through on threat to veto bipartisan tax plan, will call special session

Gov. Laura Kelly speaks with reporters May 14, 2024, at the Topeka and Shawnee County Public Library. (Sherman Smith/Kansas Reflector)

TOPEKA — A session-long standoff between Gov. Laura Kelly and state legislators over changes in tax policy reached its inevitable climax Thursday when the governor vetoed a bipartisan tax plan as promised.

The Democratic governor will call lawmakers back to Topeka for a special session.

“I recognize that Kansans desperately need tax relief. I will be working with legislative leaders to come to a compromise, forging a bipartisan tax cuts plan that will responsibly provide tax relief for all Kansans without threatening our state’s future fiscal stability,” Kelly said. “Next week, I will be announcing the date of a special legislative session so we can deliver comprehensive, sustainable tax cuts. If we all work together, an affordable, bipartisan tax plan can be passed in less than a day.”

The governor had threatened from the start of the year to call a special session if lawmakers refused to pass a tax plan she endorsed.

Instead, Republican leadership tried and failed to impose a single-rate income tax, known as a “flat tax,” earlier in the year, but couldn’t override the governor’s veto. The plan would have gifted a windfall to the state’s wealthiest wage earners.

Republicans then pivoted to a more modest, two-tiered income tax rate — packaged with other income and property tax cuts favored by the governor — and won the support of House Democrats, who viewed it as the best deal they were likely to get for constituents during an election year.

But Kelly — jilted by GOP leaders’ unwillingness to consider Medicaid expansion and fearful of the costly ramifications of a big tax cut package — vetoed that plan, as well, and proposed her own package of tax cuts. Once again, Republicans ignored the governor and adopted legislation that was nearly identical to their previous failure.

So she followed through on her promise and vetoed  Senate Bill 37.

“I have given the Legislature several roadmaps to fiscally responsible tax cuts since January,” Kelly said. “Instead, they played political games with reckless tax policies, and I vetoed them. I said irresponsible tax policies would lead to a special session.”

Senate President Ty Masterson, R-Andover, said the governor’s “shifting reasons for vetoing tax relief have now morphed into the absurd, especially when the state she governs is awash
with billions in surplus money.”

“She has opted for the ‘my-way-or-the-highway’ approach and is calling us in for a needless and costly special session,” Masterson said. “Rest assured, we will act as quickly as possible and give her yet another attempt to sign real tax relief.”

The governor also vetoed two other tax bills. House Bill 2097 would have provided about $16 million in annual tax credits for film development, nonprofit theaters and employers who hire National Guard members. House Bill 2096 resurrected a tax break long sought by Genesis Health Clubs, whose owner, Rodney Steven, is a major donor to Republican legislators. The Genesis tax break was bundled with property tax credits and income tax relief for veterans.

“To favor a specific business, a tax abatement scheme was floated to put taxpayer dollars into that business’ pocket at the expense of local government services,” Kelly said. “That’s wrong. Taxpayer dollars should not be diverted to political donors under the guise of tax cuts.”

Lawmakers now will have to suspend their reelection campaigns and return to Topeka to produce a plan the governor is willing to sign. They also could entertain other bills on any other subject matter, but it would mean starting from scratch with a new piece of legislation. All bills introduced over the past two years were voided when lawmakers adjourned the regular session.

Republicans are expected to try to hold the line on provisions included in SB 37, which cleared the House by a 108-11 margin and the Senate 25-9. But the prospect of another veto may force them to compromise with the governor.

“The Legislature has worked together in a bipartisan manner and jumped through multiple hoops in hopes of hitting her ever-moving targets, and our focus remains solidly on returning excess taxpayer dollars to Kansans regardless of the unreasonable challenges posed by the governor,” said House Speaker Dan Hawkins, R-Wichita. “It seems her laser focus has shifted solely to wasting your money on a needless and spiteful special session.”

The biggest flashpoint for controversy this year involved disagreements over proposed changes in the state’s income tax system.

Kansas currently uses a three-tier rate structure: 3.1% for income under $15,000, 5.25% for income between $15,000 and $30,000, and 5.7% for income above $30,000. The income amounts are doubled for couples filing jointly.

SB 37 would have established two rates: The first $23,000 in income would be taxed at 5.2%, and anything over $23,000 would be taxed at 5.57%. The threshold would be $46,000 for couples.

The changes would have reduced income tax collections by an estimated $1.085 billion over five years.

Kelly’s proposal would have kept the three-tier income tax system but lowered the rates to 3%, 5.2% and 5.65%. That would lower tax collections by an estimated $806 million over five years.

The Legislature and governor were on the same page with proposals to exempt Social Security income from income tax collections, and to move up the elimination of the sales tax on food from January to July.

The governor wanted to exempt $125,000 from residential property values before applying the state’s property tax, while the Legislature wanted to exempt $100,000 and lower the rate from 20 to 19.5 mills.

The Legislature’s plan also would abolish the Local Ad Valorem Tax Reduction Fund. From 1937 to 2003, the state distributed a portion of sales tax collections into the fund, which then offset local property taxes. County-level officials had hoped to persuade lawmakers to revive the program, rather than abolish or continue to defund it.

The governor’s proposal also would have added a child care tax credit valued at $18 million per year.

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