By Gene Meyer | KansasReporter

TOPEKA — Kansas taxpayers about to watch two competing plans for state income tax reform volley for their attention this winter will be asked to keep an eye on a third proposal.

State House Republican leaders unveiled the broad outlines of a major tax overhaul proposal that focuses on curbing state spending to reducing state income taxes, eliminating many taxes that small businesses pay entirely, and accelerating the reduction of Kansas' 3.5 percent and 6.25 percent state income tax brackets for low- and moderate-income taxpayers.

The new proposal will join a plan, presented by Gov. Sam Brownback last week, that cuts Kansas' top state income tax rates to below 5 percent but abolishes many tax credits and deductions taxpayers now claim; as well as a plan — which the Senate will propose — that has yet to emerge from a state Senate tax study committee.

"Because our session only lasts 90 days and whatever we propose has to be heard in committees and debated on the floors of both the Senate and the House, we really need to have something ready this month," said state Sen. Les Donovan, R-Wichita. Donovan chairs both the study committee and the Senate Assessment and Taxation Committee, the Senate's primary tax policy panel.

Few details from any of the three plans are known.

The Senate plan is still under construction; legislative research and legal specialists — who must draw up the specific language that will be presented to lawmakers — are working on Brownback's plan; and similar work on the new House proposals probably won't begin until the middle of next week because of a fast-growing legislative workload, said House Speaker Mike O'Neal, R-Hutchinson.

Still, Kansans will see a significant change in the state's income tax plan before legislators adjourn this spring, O'Neal said.

"We see these plans as three different roads to the same destination," he said.

But Larry Halloran, a tax reform advocate from Mulvane, said all of the plans, so far, fall short of the bigger changes that Kansas needs.

"They offer half measures when we need to take major steps," Halloran said.

Halloran favors scrapping all Kansas income taxes and imposing consumption taxes on goods and services.  

"For one thing, if we don't like what government does, a consumption tax gives us a means to shut off the money; we just stop consuming," he said.

But Ken Daniel, who owns a Topeka building materials distribution company, said prospects for Kansas tax reform look promising.

"I started my business 41 years ago, with $300," Daniel said. "It's worth $15 million today.

"We financed that growth with retained profits, which is what you do," Daniel said. "And the governor's plan lets me retain more of those profits." 

The plan that House leaders outlined Friday includes some of the governor's proposed changes, including a requirement that any growth in general fund tax revenue exceeding 2 percent annually be used to reduce state income tax rates for payers in the two bottom brackets, which generally is anyone with household income of $30,000 or less.

The House plan, like Brownback's, also calls for the elimination — as early as next year — of all state income taxes on business and rental income, royalties and similar income that individual business owners, partners, limited liability company participants and small subchapter S corporation shareholders receive. Partnerships, limited liability companies and subchapter S corporations are among the types of business-organization structures — used by an estimated 191,000 Kansas taxpayers — that tax business income the same as personal income.

Incorporating the changes will refocus Kansas tax codes "on growing private sector businesses without adding to the burden of lower-income taxpayers," said state Rep. Richard Carlson, R- St. Mary's, who chairs the House Taxation Committee.

But unlike Brownback's plan, the House proposal won't abolish state income tax deductions for home mortgage interest or tax credits that return sales tax money that low-income Kansans pay for food and housing. The House proposal would allow six-tenths of a temporary 2010 sales tax increase to expire on schedule next year; Brownback proposed to make the increase permanent.

But like the governor's plan, the House proposal would eliminate a Kansas earned income tax credit that low-income wage earners can claim to help offset Social Security and other payroll taxes. Both plans call for investing the tax credit money, about $60 million, in Medicaid instead, so that matching federal funds raise the total contribution to Kansas' revenues to $130 million.

Both the Medicaid enhancement and the opportunity to enhance disposable income when sales taxes drop will help low-income residents, said state Rep. Marvin Kleeb, R-Overland Park, the tax committee's vice chairman.

But in reality, the change will come as a jolt to low-income Kansans for whom the money is a tax-time boon, said Sister Therese Bangert, social justice coordinator of the Sisters of Charity of Leavenworth and a tax-time volunteer in Kansas City's inner city.

"Through the years, I have asked Head Start parents how they use the federal and state earned income credits," Bangert said.

"They told me they pay bills, which include medical bills, buy new tires or do needed repairs on their car, improve their housing, increase their skills through education or buy their children shoes," she said. "One couple even paid a couple of months rent in advance." 

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