Will Kansas cut taxes on diapers, create sales tax holiday? Gov. Kelly outlines agenda

Kansas Gov. Laura Kelly is proposing elimination of the state sales tax on diapers and feminine hygiene products and the creation of a four-day sales tax holiday in August on school supplies as part of a tax cut agenda that sets up a potentially fraught back-and-forth with Republican lawmakers.

Echoing promises made in her campaign, Kelly, a newly reelected Democrat, is also once again calling for an immediate end to the state sales tax on food instead of the phased-in reduction the Legislature approved earlier this year. And she wants a tax cut for retirees with annual incomes between $75,000 and $100,000.

With the proposals, Kelly is aiming to position herself as a champion of Kansas families as she prepares for her second term, while signaling she is prepared to fight any GOP-supported tax plans that she deems irresponsible. That puts her on a possible collision course with Republican lawmakers, who have previously faulted Kelly for not embracing more expansive tax cuts that encompass businesses.

Kelly has vetoed Republican tax bills in past years, arguing they risked the state’s fiscal recovery from former Republican Gov. Sam Brownback’s income tax cuts, which were largely rolled back five years ago. After years of revenue growth, Kansas currently anticipates ending the fiscal year with $2.3 billion on hand.

“We won’t continue to be in such a good financial position if the Legislature pursues irresponsible, reckless tax cuts that threaten our state’s fiscal health,” Kelly told reporters and legislators who gathered for a news conference at a Price Chopper in Roeland Park on Monday.

“We need to think about effective, financially responsible economic policies that are going to help average taxpayers and not hurt our state in the long run.”

Kansas House Speaker-elect Dan Hawkins, a Wichita Republican, said the House would consider Kelly’s bills “along with others.”

“Democrat policies have led to massive cost of living increases. House Republicans are focused on broad-based tax relief that will benefit all Kansans,” Hawkins said in a statement. “After years of vetoing tax relief that would already be helping struggling Kansans, the governor is singing a different tune.”

Earlier this month, Hawkins told reporters the Kansas Senate was working on tax legislation for the coming session, which begins in January. Senate President Ty Masterson, an Andover Republican, did not immediately respond to a request for comment.

Kelly’s tax package had been outlined, in part, during her reelection campaign. Her campaign this fall released a “road ahead” plan that gave a broad overview of all three ideas alongside promises of “responsible fiscal management” in her budget process.

Monday’s announcement details those proposals. After Kelly’s news conference, the governor’s office released three draft bills containing the governor’s tax plans.

One bill would immediately bring the state’s 6.5% sales tax rate on food to zero. A bill approved by the Republican-controlled Legislature and signed by Kelly earlier this year staggers the reductions over a number of years and doesn’t include the elimination of sales tax on diapers and feminine hygiene products, which is included in the new proposal.

Kansas currently collects more than $400 million in sales taxes on food each year. Ending taxes on diapers and feminine hygiene products is valued at about $22 million over three years, according to Kelly.

Kansas has among the highest sales tax rates on groceries in the country. The legislation would only eliminate the state sales tax rate, leaving local sales taxes in place, but many municipalities would likely face pressure to repeal their taxes as well.

Similar exemptions for diapers or feminine hygiene products have been approved in a wide swath of states including California, Ohio, Virginia and Florida, according to the National Conference of State Legislatures.

Another bill from Kelly would impose a four-day state sales tax holiday on school supplies from the first Thursday in August through the first Sunday. The holiday would apply to common supplies such as pens, pencils and backpacks, but also to clothing items under $300, computer software under $300 and computers under $2,000.

While intended for school children, their families and educators, the tax holiday would also effectively create a window for all consumers to purchase a variety of goods without paying state sales taxes.

In the Kansas City metro, the bill as written would give Kansas retailers an edge over retailers in Missouri, which has its own back-to-school tax holiday in early August. Kansas’ holiday window would begin a day before Missouri’s but end at the same time.

“Shopping for school supplies can be tough. The supply list is long and expenses add up,” Kelly said.

Kelly also released a bill that would reduce state income tax on retirees who earn between $75,000 and $100,000 a year. Currently, retirees who earn up to $75,000 a year don’t pay state income tax, but if an individual earns more than $75,000 all of their Social Security income is taxed — creating a cliff that encourages retirees to keep their annual income below that level.

Under the bill, the state income tax owed by retirees with $75,000 to $100,000 in annual income would be determined by a formula that depends on how much income and Social Security benefits the individual is receiving. The retirement tax changes are valued at more than $50 million over three years, Kelly said.

Kelly’s package will likely encounter some resistance within the Legislature. Republican leaders so far have been non-committal on immediately ending the sales tax on food.

But other points of Kelly’s package share some similarities with what Kansas Attorney General Derek Schmidt, Kelly’s Republican opponent, had proposed during his campaign. For instance, Schmidt had advocated for the elimination of the sales tax on feminine hygiene products and diapers.

Schmidt had also promoted a complete elimination of income tax on retirement benefits, a plan that goes further than what Kelly has proposed. Without naming Schmidt, Kelly on Monday offered his plan as an example of the kind of “irresponsible” tax proposal that she would oppose.

“That would send us right back into the ditch,” Kelly said.

Republican lawmakers on the state’s interim tax committee recommended action last week to eliminate the $75,000 cliff on Social Security taxes. Their full recommendation was similar to Schmidt’s, advocating for the eventual elimination of all taxes on Social Security and reduced — or eliminated — taxes on other retirement benefits.

“It seemed like there was substantial interest in removing that cliff at $75,000 from 0 to 100%,” Rep. Adam Smith, a Weskan Republican who chairs the interim tax committee, said last week.

Smith said he believed the committee agreed the cliff, as well as a law that applies the cliff to couples filing jointly, should be eliminated.