Who voted for the LLC tax loophole?

Even the uninformed voters in Kansas have heard of the "LLC loophole."1 This is the provision included in the 2012 tax cut experiment that exempted businesses incorporated as Limited Liability Corporations. The loophole allows the owners of those entities to avoid taxes on the profits of the business, resulting in 330,000 businesses no longer paying taxes, while their employees still do.2

Mind you, this LLC exemption itself did not cause the budget crater that continues to deepen. The tax cuts of 2012 also included enormous cuts to the standard tax rates, and it is this that really put us in the hole.

We bring the LLC loophole up because the weekend before the Kansas Legislature adjourned, a bill came up to repeal it. The bill did not pass, but the recorded votes are odd, with some Democrats and Moderate Republicans voting for it, and others against. Many articles have been written about this vote. Some are reasonable, some are absurd. We have a sampling below.

This kangaroo vote, because that is what it was, will be brought up during the election season. You may see it on postcards. You may be encouraged to ask a candidate about their vote on this bill. The candidates we support, moderates of both parties, are always willing to sit with a voter and explain their votes, but we thought we'd take some time to cast our own light on this bill.

The real story

H Sub for SB 63 is the bill. But if you go to the legislature's site and read the supplemental note, it talks about e-cigarette taxes, a temporary sales tax exemption, and community improvement districts. Nowhere does it talk about the LLC exemption.

So where is the LLC repeal?

You have to dig a little deeper to find it. In the Journal of the House for April 29, 2016 (which are the minutes, essentially, of the House proceedings), search for "SB 63" and the picture starts to emerge.

The first instance notes that subsection (k) of Joint Rule 4 of the Joint Rules of the Senate and the House of Representatives is being suspended for the purpose of considering SB 63 and a few other bills. This rule has to do with deadlines for introducing new bills for consideration, specifically noting that no new bills shall be considered after April 1, 2016, unless, you know, they decide to suspend the rule.

The next instance in the Journal notes that the bill has been amended by a conference committee. Earlier on the morning of April 29, a joint conference committee of House and Senate gathered to hammer out their differences on the original SB 63. The committee was made up of four Republicans (Kleeb, Hutton, Donovan, and Tyson) and two Democrats (Sawyer and Holland). The changes that were made were approved by the committee, and, in this section of the Journal notes, are being introduced to the House for their approval in an up or down vote, with no discussion allowed.3

The changes are simple. Here is the bill as it existed before conference committee, for reference. The changes made by the committee are, "On page 1, by striking all in lines 8-36; By striking all on pages 2 through 38; On page 39 by striking lines 1-13..."

There are only 39 pages in the bill, and they struck them all. So the conference committee began work by stripping out the entire contents of SB 63.

The House Journal goes on to say what the conference committee then did, "... and inserting:" followed by the text of an entirely new bill.

Since it did not pass, the only place to see this new bill is in the House Journal. This new bill that would have repealed the LLC loophole. This new bill that did not exist the morning of April 29, but was expected to have a vote that afternoon.

The Journal records the votes taken on this bill, now H Sub for SB 63. The bill failed, and the vote was 45 in favor, 74 opposed.

The House Journal goes on to record the official "Explanations of vote" if representatives gave one. They amount to, the bill was introduced today, the bill was never vetted by committee, we have barely had time to read the bill, the bill does not solve the problem (repealing the LLC loophole would not reverse the tax experiment), an up-or-down vote gives no opportunity to debate the merits of the bill, etc.

Still with us? Here's the important point.

Who voted for or against this bill is not the important point, much as the architects of this scheme want you to focus on that.

This LLC loophole repeal bill was never an attempt to fix Kansas' budget problem. This was a politically motivated, election year opportunity, a disingenuous vote meant to trap legislators into lengthy explanations and equivocation. Good Democrats and Moderate Republicans, all of whom have voted 100% with moderate positions on real bills with real consequences, voted both for and against this bill. One Democrat voted for, one against. One Moderate voted for, one against.

The important point to remember is this: the ultra conservative leadership in the Kansas Legislature is running scared of the Kansas voters. They will stoop to any length to fool us, to convince us to vote for them and their policies.

So remember what it really means, when you hear someone say that a Democrat or a Moderate voted to keep the LLC tax cuts. It means that you have an opportunity to tell that person the real story.

Further reading

Next week, we will publish our vote count for the current legislators. It is clear who supports the moderate values Kansans share, and who does not. Until then, share this story, talk to your neighbors, make sure they stay informed. Do more than vote.

Notes and Corrections:

1. Not exactly a loophole, the LLC tax exemption was an intentional part of the tax bill, and has been called a "loophole" only recently, to make it seem unintentional.

2. Originally, we stated that LLC business owners no longer pay income tax. This is not true, they do still pay tax on their personal income, just not on the profits of their businesses.

3. We have been told that the Kansas Senate never saw the conference committee report, and so could not have passed it, as we stated in an earlier version. We regret the error. Instead, the conference committee, with members of the Senate, had acceded to the changes to SB 63. The Journal states, "The Senate accedes to all House amendments to the bill," but that refers to previous amendments made by the House and not agreed to by the Senate, thus prompting the conference committee. It appears that in committee, the Senate representatives did agree with all the amendments, right before stripping the bill out and replacing it with the LLC exemption repeal.

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