Tax-cut bill rhetoric ramps up

Several business-related bills have landed on Gov. Jay Nixon’s desk since the end of the 2013 regular session in May, but perhaps none have been as contentious as a plan to reduce the state’s income tax rolls.

Nixon last month vetoed a phased-in reduction of the income tax rate to 5.5 percent from 6 percent, aka Senate Substitute House Bill 253, and the proposal’s fate is now in the hands of the general assembly when legislators begin the veto session Sept. 11. Key features of the bill include incremental reductions during a 10-year period and only in years following a tax revenue increase of at least $100 million.

The veto has drawn ardent criticism from the Missouri Chamber of Commerce and Industry, which has impugned Nixon for holding other state services hostage if his veto is overthrown and launched a campaign in support of overriding the veto. Nixon moved on June 28 to restrict $400 million from the fiscal 2014 budget, citing an estimate the tax cut would cost the state $800 million in tax revenue when fully phased in and a $1.2 billion hit on Missouri if federal legislators pass the Federal Marketplace Fairness Act. Chamber officials perceive the withholding as a threat, given the state ended fiscal 2013 with a $339 million surplus on June 30.

“It’s counterintuitive,” said Dan Mehan, Missouri chamber president and CEO. “We are getting so tired of people trying to pit education against business. It is unfortunate the administration would want to do that.”

A fiscal note on the bill estimates the tax reduction would cost the state between $492 million and $692 million in the next decade. In his veto statement, Nixon said the bill is “an ill-conceived, fiscally irresponsible experiment that would inject far-reaching uncertainty into our economy, undermine our state’s fiscal health and jeopardize basic funding for education and vital public services.”

Mehan said the tax-reduction measure is considerate of business and government.

“It was a very measured, responsible approach. That’s why it is phased in. It won’t shock the state,” Mehan said.

He said according to a poll commissioned by the Missouri chamber, more than 75 percent of state residents approve of the tax-cut proposal once they understand what is in the bill.

To spread the word, Mehan said the chamber officially launched a statewide media campaign on July 15 that would run until the veto session in September.

“I don’t know what we’ll end up spending, but we have spent right around $200,000 on the first buy, and that’s significant,” Mehan said.

Not all business groups agree with the chamber, however.

The Coalition for Missouri’s Future – an association of business, labor, education, health care and civic organizations that promotes sound tax policy – supports Nixon’s veto, citing a flaw in the $100 million trigger identified by proponents.

“It doesn’t take into account that Missouri services are still recovering from the recession, and many services receive less funding today compared to a decade ago, particularly when you adjust for inflation. In context, the trigger would allow state revenue to grow by about 1 percent per year before tax cuts are phased in – not even enough to keep pace with inflation, let alone meet the needs of a changing and growing population,” the group says on MissouriFuture.com.

The group also argues Missouri has been recognized for its positive business environment and fair tax structure.

Earlier this month, Missouri ranked No. 9 on the Pollina Corporate Top 10 Pro-Business States study that analyzes corporate tax indexes, unemployment insurance costs and electricity rates. Missouri has ranked in Pollina’s Top 10 four years straight.

Mehan said the regional environment is becoming more competitive, and Missouri needs to react accordingly. He said seven out of Missouri’s eight neighboring states have reduced tax rates on businesses in recent years or are in the process of doing so.

“The only one that isn’t is Illinois, and I wouldn’t want to trade with Illinois,” Mehan said.

The most dramatic reduction is in Kansas, which dropped its income tax rate during the last two years to 2.3 percent from 6.5 percent.

“Many people are concerned that we should not overreact to what Kansas did, but there is a large group of people who feel we should be competitive with Kansas and other states that have reduced their tax burden on businesses,” said Sen. Bob Dixon, R-Springfield, who supported Missouri’s income tax cut. “I have been of the opinion that both are thoughts of wisdom.

“It was important that we did not overact and follow Kansas down the yellow-brick road, so to speak, and do something that was destructive to public education and the like,” Dixon added, noting he prefers the conservative phased-in approach on the table.

William Delehanty, associate professor of political science at Missouri Southern State University, who holds a doctorate from the University of Kansas and follows politics on both sides of the border, said what’s happening in Jefferson City is a war of words designed to influence the upcoming veto session. Words, however, might not be enough.

“There might be the possibility of an override, but the issue is the supermajority required to do so,” Delehanty said.

To override Nixon’s veto, both chambers would have to pass a motion by at least a two-thirds majority.

Delehanty said while reducing tax rates might attract companies to bring jobs to Missouri, there are other important factors business owners routinely weigh.

“I am not sure Kansas is facing a budget crisis, but the idea is with falling revenues, either you cut spending or the provision of services as a way to balance your budget. I think the political issue for Kansas, and possibly now for Missouri, is a question of priorities,” he said.

“Given less money coming in,” Delehanty added, “what does Missouri want to spend its money on? That’s going to be the issue, and that’s the issue Kansas is working through right now.”

Though the tax-cut measure received widespread Senate support, the bill did not meet the 109-vote override threshold when passed earlier this year, which means the Missouri chamber’s efforts will have to retain the Senate support and gain six votes in time for the veto session.

While Mehan hasn’t appreciated Nixon’s move to set aside $400 million of the fiscal 2014 budget until after the veto session, he understands it.

“It could be effective because when you are threatening to cut state employees, threatening to cut education, people don’t want to do that,” Mehan said. “I think it is going to be very close either way.”[[In-content Ad]]