Legislation may have nil effect on small-business owners

As the Missouri General Assembly’s session draws to a close May 30, the Show-Me State’s small-business owners find themselves in the crosshairs of a partisan political battle in Jefferson City.

Small business is the go-to buzzword for a legislative session divided along party lines. And the interests of small-business owners became the main talking point for a pair of naturally divisive issues some officials say were doomed from the start: Medicaid expansion and tax cuts.

Despite the endorsement of such business groups as the Springfield and Missouri chambers of commerce, the General Assembly failed to pass Medicaid expansion last session, and, the federal proposal is on track to do the same this year.

The issue has produced large outpourings of community support from numerous social sects, including many state doctors who filled the capital rotunda and statewide faith leaders who caused the Senate to shutdown May 6 as they chanted pro-expansion messages. Multiple news sources reported 23 clergy were arrested as a result.

Small-business owners joined the rhetoric mix as Gov. Jay Nixon on April 28 proposed the Missouri Health Works program to pay a portion of employers’ health insurance costs for qualifying employees. The program, however, hinges on the passage of Medicaid expansion.

Once thought unlikely to pass as well, a new tax code will soon take effect in the Show-Me State. Vetoed by Nixon on May 1, Senate Bill 509 found new life as both the House and Senate voted to override just five days later. A paired down version of tax-cut legislation Senate Bill 253, the veto of which the legislature failed to override last session, supporters call the new 25 percent deduction on an individual’s business income a win for small-business owners.

“We’ve been trying for a couple years to get some tax relief, and now we join with half the other states in the country,” said Daniel Mehan, Missouri Chamber of Commerce president and CEO. “Six of the eight contiguous states have done something; it was time to make sure Missouri got a break.”

Tax-cut controversy
The tax-cut law sponsored by Sen. Will Kraus, R-Lee’s Summit, will gradually cut the state’s top individual income tax rate to 5.5 percent from 6 percent and phase in a 25 percent deduction for business income reported on personal tax returns.

Any changes won’t start until 2017 and require $750 million in new state revenue to be created before taking full effect.

The Missouri chamber said the relief is targeted at small business and individual taxpayers, not corporations.

“This will impact hundreds of thousands of small businesses in the state,” Mehan said. “More than 75 percent of Missouri’s businesses have 10 or fewer employees.

“Tax relief allows more jobs to be created. Small business is the fastest-growing job sector. These large manufacturers are not creating jobs – Missouri’s small businesses are.”

However, local small-business owners such as Chuck Fugate, owner of Ozark-based Chuck Fugate Insurance Agency Inc., a State Farm agent, aren’t convinced the new law will have much effect on their business.

“It’s a reduction in income taxes, as well as an income tax deduction for business income,” he said via email. “The amount of reduction in taxes is so small for a business owner like me, it makes little or no tangible difference in my business. No new jobs here.” 

Also president of the Ozark R-6 School Board, Fugate said he reviewed the measure through the lens of a small-business owner, but also as a board member and parent.

“I don’t feel legislators on either side of this debate were completely clear on exactly what this bill would mean in terms of actual reduction in our out-of-pocket to the Missouri Department of Revenue,” he said. “The Missouri GOP has fallen under the spell of several schemes to defund and depopulate public schools. In the education community, even in conservative southwest Missouri, there’s mistrust of this tax cut.

“I’m a Republican; we all want less taxes. I just don’t want to jeopardize Missouri’s future by continuing to walk away from public education.”

Springfield Public Schools urged lawmakers not to override Nixon’s veto, estimating the bill could cost the district $6.5 million in annual revenue.

Multiple organizations across the state issued statements on the veto override, including The Missouri Budget Project, which said, “the service cuts that will be required as a result of SB 509 will devastate Missourians’ quality of life and ability to compete.”

“Missourians and businesses expect safe, stable communities, but law enforcement, mental health and social services will be left scrambling for budget crumbs,” Executive Director Amy Blouin said in a news release. “Legislators who voted for SB 509 should be ashamed.”

Medical minefield
Small-business owners continue to struggle with increasing health insurance premiums under the federal Affordable Care Act.

Ollis & Co. small group and individual benefit adviser Erica Gaynor said most owners are seeing increases of 20 to 40 percent as they renew.

“Premiums are not going down, and I don’t think they are even going to level off in the future,” she said. “On the surface, Missouri Health Works seems like a win-win, but you don’t know what is just below the surface.”

Under Nixon’s proposal, for employers with fewer than 150 employees, Missouri Health Works would pay a portion of employers’ health insurance costs for their employees making below 138 percent of the poverty level, or $27,310 annually for a family of three, according to a news release.

Under ACA, employees with more than 50 employees must provide affordable health insurance coverage to their employees or pay a penalty. Nixon said Missouri Health Works would lessen this burden by using the dollars available through Medicaid expansion to pay for an estimated 60 percent of the cost of the health premium for eligible employees.

“I think the majority of employers in Springfield have less than 150 employees, so this could potentially have a big impact on small-business owners,” Gaynor said. “Whether they have employees below 138 percent of poverty level is a different story. I think it will still have an impact, but potentially a lot less.”

Fugate said the program wouldn’t have an effect on his three employees.

According to Nixon’s proposal, federal funds would cover 100 percent of the costs for calendar years 2015 and 2016 and funding for Missouri Health Works would involve no state tax dollars for those years. Then, beginning in 2017, the state share would gradually increase to no more than 10 percent of the cost in 2020. Arkansas, Iowa, Kentucky, Maryland, Minnesota, Nevada, New Mexico, Oklahoma and Oregon already have similar programs in place.

According to an analysis by the Missouri Economic Research and Information Center, expanding and reforming Medicaid would result in the creation of 23,868 jobs, $9.9 billion in new wages and $14.6 billion in new gross state product from 2015 to 2022. According to the report, Medicaid expansion also would generate $402 million in new state general revenue from 2015 to 2022, including $53 million in new general revenue in 2015.

“(Missouri Health Works) has merit for discussion, but why was it only brought up with three weeks left in the session?” Missouri chamber’s Mehan said. “I think this was a sideshow on the back of small-business owners to attract attention away from the tax-cut debate.

“It’s a slap in the face to the legislature to introduce this so late, and the governor knows better.”

Mehan said while the state chamber supports Medicaid expansion, he questions why the idea of Missouri Health Works wasn’t introduced earlier.

“Any type of assistance that helps small businesses without affecting taxpayers is welcome,” Gaynor said. “However, I personally don’t foresee Medicaid expansion succeeding this session, so Missouri Health Works won’t be a factor.”