Will Laura Kelly sign newest tax cut plan after Kansas lawmakers ignored her advice?

Gov. Laura Kelly has a decision to make: will she sign the newest tax cut plan that Kansas lawmakers sent her after ignoring her advice on a previous proposal?

While Kelly has not yet commented publicly on the tax cut plan that legislators passed early Saturday morning, there are at least two major aspects of it that the governor has said she wouldn't like.

It is unclear if the latest version of House Bill 2036 would have supermajority support to override a veto. While the House unanimously supported it, the Senate was three votes shy of a supermajority as two senators passed and five were absent.

What's in the latest version of the tax cut plan?

The tax cut package includes the following:

• Restructuring individual income tax brackets. The three-tier system would be converted into two tiers, while the income thresholds would also increase.

• Exempting all Social Security benefits from individual income taxes. It was already exempt for retirees earning less than $75,000.

• Increasing the standard deduction and personal exemption amounts.

• Reducing privilege tax rates on banks and other financial institutions.

• Increasing the residential property tax exemption on the statewide school finance levy while also reducing the mill levy.

• Abolishing the local ad valorem tax reduction fund and the county and city revenue sharing fund, a pair of unfunded programs intended to use state tax dollars to provide local property tax relief.

• Accelerating the elimination of the state sales tax on grocery food.

Laura Kelly opposes eliminating a tax bracket

After failing to secure the votes to override Kelly's veto, Republican leadership was forced to move on from their tax cut priority of implementing a flat tax. That would have eliminated the state's current three income tax brackets and imposed one single rate.

Kelly backed a different tax cut plan that retained the three-bracket structure, but the plan passed by the Legislature reduces it to two.

Kelly said maintaining three tiers "is incredibly important going forward. It is the fairest way to do it. If anything, I want more tiers."

Cost of the tax cut plan is millions above Gov. Kelly's cap

After a cost of about $637 million in the first year, the tax plan would average about $464 million in tax cuts per year over the next four years. In fiscal year 2029, the projected cost is $469 million.

Kelly had told House Democrats that "most important to me, quite honestly" is ensuring tax cuts are done "in a fiscally responsible way."

"We have a cap, a ceiling, on the amount that we could cut taxes and still be able to operate, fund our schools, fund our roads, fund our water plan, all of those kinds of things," Kelly said. "We had cap, and that was $425 million in the out year, fiscal year '29."

There is at least some wiggle room for Kelly on that cap, as the plan she supported had a project fiscal year 2029 cost of $436 million.

The fiscal note on HB 2036 does not include the cost of tax cuts in other bills, such as $18 million in a child and dependent care tax credit in a package on early childhood development, which would push the $469 million even higher above Kelly's cap.

House rejected earlier tax plan backed by Laura Kelly

The House and Senate both stuck around until after 2 a.m. Saturday on the last day of the regular legislative session, working late in-part to pass a tax cut package before taking a three-week break.

That came after a previous tax cut package backed by Kelly and GOP leadership failed Thursday night after finding little love from rank-and-file legislators of both parties.

"It is in the spirit of compromise when everyone is modestly uncomfortable," said Senate President Ty Masterson, R-Andover, who helped convince senators to vote 38-1 on that version of the plan.

But support fell apart in the House, which rejected that plan on a voice vote, leaving no official record of how individual legislators voted.

"I do recognize that there is a lot of discomfort with the compromise that we struck last night, and I want you to know that I'm not that happy with some of the things that are in there either," Kelly said, personally attending the House Democrat caucus meeting Thursday morning to ask them to vote for the bill.

Kelly said there was "a lot of good stuff" in that deal and warned that rejecting the plan in hopes of getting a better deal would likely backfire and result in a worse package.

"We should be embracing this and taking credit for it rather than saying it's no good and we should try to get better," she said.

While caucus meetings are typically open to the public and held at the Statehouse — as the Democrats' was — House Republicans went off-site for a secret Thursday afternoon meeting to discuss the tax plan.

When they returned for the vote, House Speaker Dan Hawkins, R-Wichita, urged his colleagues not to trash the bill because it wasn't as good as what they wanted. He predicted the House's failure to pass the bill would result in headlines of "House scuttles tax relief for Kansans."

"Try to message that one," Hawkins said.

But House Republicans defied their leader, and House Democrats defied the governor.

Rep. Stephen Owens, R-Hesston, made the motion to reject the bill, which he called "inferior" to a previous House plan. He argued Kansans deserve a better tax cut package. House Minority Leader Vic Miller, D-Topeka, also opposed the plan, arguing that the Senate should instead take up the plan the House passed unanimously that Senate leadership rejected.

"How about this headline: 'House fights for more tax relief that Kansans deserve,'" Owens said.

New plan goes to governor

When voting on the new plan, Rep. Tom Sawyer, D-Wichita, said it was better than the one Kelly supported.

"This is a tax bill that we should be proud to support," he said.

Owens said they were able to deliver more tax relief to constituents because, "We dared to demand more, each of us standing up to someone."

While the Legislature has passed HB 2036, it hasn't formally been sent to the governor's desk, meaning the clock hasn't started ticking for how soon she has to make a decision.

Masterson said, "Kansans are just one signature away from the tax relief they've been asking for."

But Senate Minority Leader Dinah Sykes, D-Lenexa, was skeptical the governor would support it.

"I see a future where this is probably going to get vetoed, because of every conversation that I have had, there have been parameters of where we feel comfortable to be able to move forward and provide the services that we need," Sykes said.

Stacey Saldanha-Olson, of The Topeka Capital-Journal, contributed reporting.

Jason Alatidd is a Statehouse reporter for The Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.

This article originally appeared on Topeka Capital-Journal: Will Kansas Gov. Laura Kelly sign tax cut plan passed by Legislature?