TOPEKA, Kan. — Governor Laura Kelly announced her plan for tax relief on Monday morning, just before the 2024 legislative session began. Kelly’s plan centers around cutting taxes on social security payments, property taxes, and sales taxes. Among the legislative supporters are Senate Democratic Leader Dinah Sykes (Lenexa), Independent Senator Dennis Pyle (Hiawatha), and GOP Senators John Doll (Garden City) and Rob Olson (Olathe).
The first tax cut in the bill comes in the form of a four-day back-to-school holiday beginning the first Thursday in August and running through the following Sunday. During these four days, all back-to-school necessities, including clothing, school supplies, computers, and computer software and accessories will be exempt from sales tax. According to Kelly, this tax cut will save parents and students an estimated $5 million annually.
On the same front, Kelly proposes doubling the Child and Dependent Care Tax Credit many working parents rely on to offset childcare costs. Using this credit, parents can deduct a portion of their childcare expenses as part of their income. Estimated savings for families would be near $6 million annually.
Many retirees continue to work part time, supplementing their social security. If the retiree’s additional income plus Social Security remains less than $75,000, there are no taxes on Social Security. However, once a retiree’s total annual income exceeds $75,000, the Social Security income is taxed as well. Kelly’s bill eliminates all state taxes on Social Security income, saving retired Kansans $525 million over the next five years.
Homeowners are getting tax relief in the form of an exemption on the first $100,000 in state property taxes, saving Kansas homeowners an estimated $100 million annually. Kelly’s office projects that 370,000 Kansas homeowners would pay less than $20 annually in state property tax – property taxes paid to counties and school districts will remain unaffected. The break applies only to the state property tax rate.
Kelly’s “axe the tax” campaign to gradually reduce sales tax on food over time gets a boost with her new bill. The food tax has been lowered incrementally each year from 6.5 percent to the current 2 percent, as of Jan. 1, with the tax to be completely phased out on Jan. 1, 2025. Kelly’s new bill proposes to eliminate it entirely by April 1 of this year. It also extends the zero percent tax to diapers and feminine hygiene products. This equates to a savings of $22 million in fiscal year 2024 (FY 2024).
Lastly, Kelly’s plan increases the state’s standard deduction on income taxes. The single taxpayer deduction will increase from $3,500 to $5,000; head-of-household increases from $6,000 to $7,500; and married filing jointly increases from $8,000 to $10,000. Over three years, raising the deduction would save Kansans an estimated $200 million over the next three years.
All totaled, Kelly’s plan saves Kansas taxpayers more than $1.1 billion dollars through FY 2027; and $1.43 billion through FY 2028.
Despite the bipartisan support, Kelly’s plan isn’t going to pass without a fight. Senate President Ty Masterson (Andover) and House Speaker Dan Hawkins (Wichita), both Republicans, have indicated the adoption of a flat-tax one of their top priorities this session, a plan Kelly intends to veto, again.
Last year, GOP leadership in both chambers pushed a bill setting a flat income tax rate of 5.15 percent that would apply to all Kansas taxpayers who made more than $10,000 annually. This lowered the income tax on median income Kansans by 0.1 percent (from 5.25) and by 0.55 percent (from 5.7) on top earners.
Kelly vetoed the measure, saying the bill would cost the state $1.3 billion over three years and put public education funding at risk and that middle-class taxpayers would see less than $100 in annual savings.
“Let me be clear, the flat tax is a nonstarter,” Kelly said. “The people who would benefit the most from a flat tax by far are those making $250,000 per year or more. There is no evidence to suggest a flat tax does anything to drive growth.”
In the past, Masterson has not denied that the top wage earners in the state will receive a tax break. They will, but so will everyone else. The top earners will get to keep more simply because they earn more.
Opponents say an imbalance occurs when accounting for sales and property taxes, as they are based on the value of the goods or services purchased, not the income of the purchaser. According to Kansas Action for Children, the lowest 20 percent of Kansans spend a greater portion of their income (10.7 percent) paying taxes across the board, such as income, property, and sales taxes. The top 1 percent of residents pay only 7.4 percent of their income in taxes.
Senator Tim Shallenburger (R-Baxter Springs) said that Kelly and the GOP leadership have very similar plans, the only difference being a flat income tax rate versus a progressive one but added that he doesn’t see that as a problem.
“I think compromise will happen,” Shallenburger said. “We are starting much closer together.”
Shallenburger went on to say, that right now, he prefers the lower flat rate, but is willing to vote for a limited progressive rate structure with a slightly higher rate for the top earners “if we can reduce everyone’s taxes a little.”
Representative Ken Collins (R-Mulberry) said he is interested in results. Although he, like Shallenburger, favors a flat income tax rate, he could vote for either bill as long as everyone gets something.
Being from a border county, both Shallenburger and Collins are mindful of the competition from neighboring states. Because those states have lower tax rates, the challenge is keeping Kansas tax policies competitive while still delivering on expected services.
“We need to cut taxes. That much is clear,” Kelly said in her remarks. “But we need to cut taxes in a way that’s fiscally responsible, doesn’t rely on one-time money, and targets the people who need it most—and is sustainable, and that doesn’t threaten progress on all the other issues Kansans care about. The flat tax doesn’t check any of those boxes.”
