- Associated Press - Friday, June 5, 2015

TOPEKA, Kan. (AP) - Republicans who control the Kansas Legislature were trying to overcome deep divisions Friday over raising taxes to close a projected budget shortfall.

Key issues were how much to raise the state’s 6.15 percent sales tax and how much to increase taxes for business owners who benefited from a 2012 policy that allowed 281,000 of them and 53,000 farmers to escape income taxes on their profits.

Legislators were looking to raise at least $406 million in new revenues for the fiscal year beginning July 1 to avoid a budget deficit. Republican Gov. Sam Brownback has threatened to veto any plan that he believes is too aggressive about increasing business taxes.

Here are things to know about the Legislature’s tax debate.

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LATEST DEVELOPMENTS

Three Senate and three House negotiators drafted a new plan Friday night to raise the sales tax to 6.55 percent and embrace Brownback’s position to limit the increase in taxes on business owners to $24 million during the next fiscal year.

The Senate scheduled a debate on the plan for early Saturday morning.

The negotiators resumed their talks after the House voted 82-27 against a plan to raise the sales tax to 6.45 percent and to defy Brownback’s veto threat by raising taxes on business owners by $101 million during the next fiscal year.

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WHY TAX INCREASES?

The state’s budget shortfall arose after GOP legislators slashed personal income taxes in 2012 and 2013 at Brownback’s urging as an economic stimulus. Not only were the profits of farmers and business owners exempted, but income tax rates were cut. Lawmakers also committed to eventually phasing out income taxes.

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SALES TAX INCREASES

Critics contend increasing the sales tax will hurt poor and working class families. Also, only eight states have a statewide sales tax of more than 6.5 percent, led by California, with 7.5 percent.

But Brownback and many Republicans argue the state’s economy will grow more if it relies on consumption taxes to fund its government.

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HELPING THE POOR

Even as they consider boosting the sales tax, legislators are debating proposals to drop the sales tax rate on food. The negotiators’ latest plan drops it to 5.95 percent.

Also, Brownback last week proposed ending personal income taxes for some 388,000 filers, but negotiators dropped the proposal from their latest plan.

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BUSINESS TAXES

Brownback touts the income tax break for business owners and farmers as a “small business accelerator.” Critics contend the policy is not fair because some businesses didn’t benefit, and even when business owners did, their employees’ wages remained taxed.

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STILL MARCHING TO ZERO?

Brownback has argued that Kansas still has a “pro-growth” economic policy if it raises consumption taxes to allow future income tax cuts. While negotiators’ latest plan would keep the existing rates in place until 2020, they did include a formula for reducing rates later.

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TOBACCO TAXES

The latest plan from negotiators would increase the state’s cigarette tax by 50 cents a pack, to $1.29, mirroring a proposal last week from Brownback. Negotiators dropped an early proposal to impose the state’s first tax on electronic cigarettes.

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TAXING HMOs

Legislators also expect to raise taxes on HMOs to raise an additional $48 million toward closing the next fiscal year’s budget shortfall, but they haven’t settled on the final language.

Most of the tax would be paid by three companies that manage the state’s Medicaid program for the needy and disabled, but the move would in turn attract additional federal funds for the program.

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Online:

Kansas Legislature: https://www.kslegislature.org

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Follow John Hanna on Twitter at https://twitter.com/apjdhanna .

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