Read my lips.
This new budget compromise in Topeka is going to be a bloodbath.
The combination of income tax cuts, sales tax cuts and — most of all—– an exemption on all non-salary payments to sole proprietors, limited liability companies and Subchapter S corporations – will lead to almost a billion dollars in lost revenue to the state over the next five years.
Those are not my figures. They come directly from the Legislative Research Department in a briefing Friday to key legislators, including state Sen. John Vratil, a Republican from Leawood. Vratil is also vice president of the Senate.
Since then some legislative analysts have goosed up their projected revenues from sales tax increases of 4 percent annually, thus greatly shrinking the projected deficit. But their estimate is a highly unlikely scenario based on past history.
“I cannot possibly vote for that budget,” Vratil told me.
“It would be devastating to our schools, roads, correction facilities, every aspect of government.”
Vratil said the six-member conference committee that came up with this compromise budget to merge the House budget with the Senate budget and to mollify the governor’s platform “reached a conclusion before knowing the impact of their plan.”
“The committee was operating in the blind,” said Vratil.
One of the main concerns of critics of the proposed budget compromise is the potential for huge losses of revenue from the exemption of distributions to “small” company owners. Many LLCs are large corporations.
Critics say there would be huge shifts from “C Corporations” to LLCs or Subchapter S to gain this generous tax exemption.
According to the governor’s office, there are 191,000 companies in the state that would qualify for the exemption. But that is before switchovers. The governor’s office claims there would be only a few switches from “C Corporations.”
I talked with two accountants who told me it would be “malfeasance” not to recommend to a client to make the switch to an LLC or Subchapter S corporation.
So, the original budget projections of a nearly billion dollar loss to the state treasury could be substantially understated.
It was not widely reported in this area, but recently more than 40 former Republican legislators, including several from Johnson County, held a press conference in Topeka asking that taxes not be cut while schools are underfunded.
They are exactly right. While schools are being starved of funds, the state has no business reducing taxes.
Those Republican moderates who traveled to Topeka to make their case, unfortunately, may find sympathy, but not many votes, even from the moderates in the Senate.
That is because right-wing Republicans, led by the Kansas Chamber of Commerce, the Koch brothers’ Americans for Prosperity, and the governor’s former chief of staff have targeted 10 moderate senators in the upcoming August primary election, in an attempt to turn it into a conservative bastion.
Moderate senators, afraid for their political lives, may vote for this outrageous budget.
Vratil thinks the vote in the Senate will be very close. He is one of the moderates targeted for defeat in the primary.
I asked Vratil if he is not running again, or if he is not afraid.
“I am not afraid,” Vratil said. “I am willing to risk my political career for the sake of good public policy.”
We hope the other Senate moderates show the same backbone.
| Special to The Star