Democratic Gov. Laura Kelly followed through with a pledge to push for comprehensive tax reform Friday by issuing a veto of legislation championed by Republican conservatives that directed the majority of a $245 million tax package to multinational corporations and wealthy individuals.
Kelly laid the groundwork by vetoing a previous version of the so-called windfall tax bill prompted by adjustments to the federal tax code by President Donald Trump. The governor said House Bill 2033, which was a pared down version of a $500 million tax-cut bill, was irresponsible because it would drive the state government's budget back into deficit territory.
"It will decimate the state’s ability to pay our bills and invest in our people," she said. "Just as Kansas begins to stabilize after years of senseless fiscal crisis, House Bill 2033 will create a $1 billion deficit within three years."
The 2019 Kansas Legislature could attempt to override Kelly's latest veto when it convenes May 29 for the final day of the annual session. It would require two-thirds majorities in the House and Senate to thwart the governor.
House Speaker Ron Ryckman, R-Olathe, and other advocates of the legislation argued Kelly's vetoes should be viewed as an "unfair tax increase" on certain businesses and individuals.
"Laura Kelly’s veto let Kansans down," he said. "Working Kansans didn’t ask for another tax hike. They deserve better than this."
Senate President Susan Wagle, a Wichita Republican who created and chaired a special Senate committee to work on tax policy, said the latest veto prevented Kansans from drawing full benefit from "the Trump tax cuts, reduce food sales tax and increase our state’s competitiveness."
"Sadly, Laura Kelly’s tax increase will take money from hardworking Kansans and place it in the coffers of big government," said Wagle, who has been considering a run for the U.S. Senate seat to be vacated by retirement of Republican Pat Roberts.
House Majority Leader Dan Hawkins, R-Wichita, said Kelly's decision to veto the pair of "commonsense tax relief plans does not display the kind of fiscally responsible leadership candidate Kelly promised" during the 2018 campaign.
Under the vetoed tax bills, multinational corporations would have been able to take advantage of a lower federal tax on foreign income returned to the United States and qualify for an exemption from state income tax on profits brought home.
In addition, wealthy individual Kansas taxpayers would have been able to take advantage of a doubled standard deduction on their federal income taxes and still make itemized deductions on state income taxes. Existing Kansas law prohibits such decoupling.
Kelly said the bill's strategy to buy down the state's 6.5 percent sales tax on food through incremental increases in internet tax collections was inadequate.
"As governor, one of my top priorities is to lower our state’s unacceptably high tax on food," Kelly said. "We must first provide relief for those who need it most and then ultimately for all Kansans."
In the veto message, Kelly repeated her preference for a broad, nonpartisan study of Kansas tax law and consideration of whether the tax code incentivized economic prosperity in urban and rural communities. She also renewed a call for development of a rainy-day fund to help deal with economic downturns that sliced into state revenue.
The original version of tax reform passed by the Legislature would have reduced state tax revenue by $500 million over three years. It was adopted by the Senate 24-16 and by the House 76-43, but attempts to override Kelly failed. The replacement bill had a three-year, $245 million price tag and passed the House 83-41 and the Senate 27-13.
Kelly has been a leading critic of the 2012 income tax exemption granted more than 300,000 business owners and the overall reduction in state income tax rates that contributed to revenue shortfalls during the administration of Gov. Sam Brownback. In 2017, after years of budget cuts, sales tax increases and large-scale borrowing, the GOP-led Legislature defeated Brownback's veto of a bill reversing much of his 2012 tax program.
"Pro-business, pro-growth, pro-family tax policy can absolutely reshape Kansas for the better, but only if it fixes the failures of the past, not repeats them," Kelly said.
In addition to the two tax reform bills passed during the 2019 session, Kelly also vetoed an abortion regulation bill.