Report: Effects of Kansas tax cuts 'understated'

Kansas report sparks new questions about explanation for revenue shortfalls

Associated Press
Report: Effects of Kansas tax cuts 'understated'
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In this photo from Tuesday, June 3, 2014, Kansas Gov. Sam Brownback answers questions during an interview with The Associated Press in his Statehouse office in Topeka, Kan. Brownback's administration is facing questions about whether income tax cuts he championed are to blame for revenue shortfalls in April and May. (AP Photo/John Hanna)

TOPEKA, Kan. (AP) -- Kansas appears to have understated the effects of tax cuts championed by Republican Gov. Sam Brownback in projecting revenues, the Legislature's nonpartisan research staff said Tuesday in a report that reignited a sharp debate over how the governor's aides have explained recent revenue shortfalls.

State tax collections in April and May fell a total of $310 million short of the state's most recent official revenue projections, which are used to set budgets. Secretary Nick Jordan stood by the state Department of Revenue's assessment that the shortfalls are tied primarily to past disputes in Washington over federal tax and spending policies that led investors to avoid claiming capital gains in 2013, fearing higher federal taxes on them.

Democrats have argued that most of the blame lies with personal income tax cuts approved in Kansas in 2012 and 2013 by the Republican-dominated Legislature at Brownback's urging. The governor contends the cuts are spurring economic growth and creating jobs, but Democrats argue the reductions were reckless and will starve public schools and government programs of needed funds.

Also, if the state continues to collect less revenue than anticipated in coming months, it could face a projected budget shortfall that legislators would have to close next year, possibly by trimming spending they approved this year.

The Kansas Legislative Research Department's report Tuesday was its monthly update on revenues, and it acknowledged the capital gains issue raised by the Department of Revenue as a factor in the April and May tax collection shortfalls. But it also said, "it appears some of the fiscal notes (estimates) associated with various income tax law changes enacted in 2012 and 2013 were understated."

"We don't have the data to tell us what the breakdown is," said Raney Gilliland, the legislative researchers' director. "We're hoping that over the summer and fall, it becomes clearer."

Kansas will cut its top personal income tax rate by 40 percent by 2019, and it has eliminated the tax altogether for the owners of 191,000 businesses.

But Jordan has said that taxes are being withheld from workers' paychecks this year in amounts close to what the department expected. And on Tuesday, he said based on their tax returns, business owners have saved from $140 million to $150 million, less than the $160 million the department expected this year.

Jordan said the numbers isolate a drop in taxes collected from capital gains as the main cause of the recent revenue shortfalls, offsetting a windfall seen last year when investors claimed their capital gains early, for 2012.

But in April and May 2012, tax collections were only $64 million ahead of expectations, according to the Legislative Research Department's monthly reports.

Senate Minority Leader Anthony Hensley, a Topeka Democrat, said Brownback is "using false information to deceive Kansans."

But Jordan noted that the Department of Revenue employees who analyze the state's tax collections have worked for both Democratic and Republican administrations.

"I'm getting tired of the integrity of the Department of Revenue and its staff being called into question," he said in a statement.

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Follow John Hanna on Twitter at www.twitter.com/apjdhanna .

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