Tax-cut passage among business highlights

A scare tactic from the governor worked in 2013, but state lawmakers weren’t having it this year.

After the Missouri House of Representatives passed a tax-cut plan – Senate Bill 509 – on April 16, Gov. Jay Nixon said a flaw in the bill would eliminate the top tax bracket once the cuts were fully implemented, potentially costing the state $4.8 billion annually.

But it was Nixon’s analysis many Republicans felt was flawed, and days after the veto, they secured an override – by one vote from a suburban St. Louis Democrat.

“This was politics at its finest,” said Rep. Charlie Norr, D-Springfield, who opposed the override.

Norr said despite the sizable stronghold conservatives had in the House, the override of SB 509 was only possible with the help of Rep. Keith English, D-Florissant. Even with all House Republicans voting in favor of the override, it was widely known they’d be a vote short.

“They put the vote off a day, and they found someone to vote with them,” Norr said of the necessary 109 votes to override.

Last year, a similar tax-cut plan failed when 15 Republicans joined Democrats in voting against the override amid concerns that school funding would be impacted.

Associated Industries of Missouri President Ray McCarty said the move is good news for businesses across the state.

“We’ve worked on this for several years,” McCarty said, noting AIM drafted language on the business-income deduction that was ultimately approved.

The bill, which will reduce the top tax rate to 5.5 percent from 6 percent over at least a five-year period beginning in 2017, allows for a 25 percent tax deduction on all business income reported on individual tax returns.

“What that does is help phase in a 25 percent business-income deduction over five years of robust growth in state government revenues,” McCarty said. “Each step of the tax cut costs about $124 million, and each step of the cut requires $150 million in revenue growth. That’s something the governor glossed over when he was flying across the state talking about how horrible this idea was.”

SB 509 was one of the key business bills the General Assembly handled in 2014. Other session highlights include a 3/4-cent transportation tax that is expected to head to the ballot box in November, and two notable failures: right-to-work legislation and Medicaid expansion.

Of course, there also were losers when the SB 509 override was successful.

“It was kind of devastating,” said Amy Blouin, executive director of the Missouri Budget Project. “The outlook for Missouri’s revenue for critical public services – K-12 education, higher education, infrastructure and so forth – is really not good.”

In fiscal 2014, she said general revenue in Missouri is up 0.5 percent compared to last year following projections of at least 2 percent growth in the 2013 session. In the face of a $100 million shortfall, Blouin said the governor is likely to reduce planned increases to educational funding in the fiscal 2015 budget. The state’s fiscal year begins July 1.

“Missouri’s required to have a balanced budget. We can’t spend what we’re not bringing in, and that’s good. However, the revenue outlook is really concerning,” Blouin said.

Right to wait
On the right-to-work issue, Norr was among those voting to snuff the legislation filed by Rep. Eric Burlison, R-Springfield.

“I’ve been a union person for 50 years. Unions are the only reason we don’t have kids working in coal mines,” Norr said.

McCarty said AIM supports right-to-work legislation in Missouri, but the timing wasn’t right for the push to allow employees to decide whether to join or financially support a union at their place of employment. Supporters say they are protecting the rights of workers, and opponents charge the laws are designed to strip the power of unions.

“The cards didn’t seem lined up to get a bill completely through the process and signed into law by this governor,” McCarty said. “The only appropriate path would have been to get a bill – and there was one in the House – that could be passed by the House and Senate and then referred to voters.”

Ultimately, he said the initiative didn’t have strong enough support from the House, in part, from an underlying fear that right-to-work supporters would only get one shot at passing the legislation.

“The last thing you want to do is take something to the ballot box and fail, because your opponents will claim that the people have spoken,” McCarty said.  

Talking taxes
Sen. Bob Dixon, R-Springfield, said the transportation tax and the approved tax-cut – both of which he supported – are not conflicting ideas.

“They both offer incentives for job growth and job creation,” he said.  

On May 14, two days before the end of the session, House Joint Resolution 68 and a similar resolution in the Senate were passed on to voters, who could weigh in as early as this summer, if the governor decides to put the issue on the August ballot, or in November. The tax is expected to generate $540 million a year for transportation and infrastructure.

Transportation tax supporters have positioned the state’s 17.3-cent per gallon gas tax as a talking point. According to the Institute on Taxation and Economic Policy, the fuel tax hasn’t increased for 18 years, and Missouri Department of Transportation officials project higher gas prices and more fuel-efficient cars would reduce transportation funds to $325 million by 2017. Between 2005 and 2010, MoDOT’s construction budget averaged $1.3 billion, according to Springfield Business Journal archives.  

Acknowledging the broad consensus for additional transportation funding, Blouin said she is skeptical voters will be swayed.

“It is going to be a stretch placing a sales tax on the ballot. There is no guarantee that voters will approve a sales tax,” Blouin said.

Through the Missouri Transportation and Development Council, a subsidiary of AIM with a separate board of directors, McCarty said the organization counts the transportation tax proposal going to voters statewide as a victory for businesses.

“It may be hard for people to understand why we could be raising taxes on one hand and cutting taxes on the other, but … it is very important to have a good transportation infrastructure, both for existing businesses and attracting new businesses,” he said. “That is one of those things that is almost always on the top of every company’s list.”

Strength in numbers
Springfield’s lone Democratic representative Norr said a resistance to expand Medicaid among conservatives is putting rural hospitals and health care providers in jeopardy for no good reason.

“I don’t understand it,” Norr said. “It’s tragic.”

Blouin said she was disappointed that despite support from groups such as the Missouri Chamber of Commerce and Industry and the Missouri Hospital Association, those in power thumbed their noses at securing health care reform dollars.  

“Missouri has the ability to leverage a significant amount of revenue from the federal government through the Medicaid expansion,” she said, adding next year could be different. “2015 is not an election year, and some of those who were opposed will not be back because of term limits.”

Dixon said a handful of state senators vowed early in the session to filibuster any expansion efforts, moves that dampened any hopes of passing a bill.

“There are strength in numbers,” he said, adding Senate leadership decided to focus on bills with greater potential to pass.

Next year, he said there could be a way to first reform the system and then receive up to $2 billion in federal funds for expansion. He said Medicaid expansion in Missouri is possible if a bill were drafted with safeguards in place for when the federal government draws back its support.

Dixon suggested reforms should include small co-pays for Medicaid recipients to help pay for the program.

“There needs to be some ownership in the plan – some skin in the game, if you will,” he said.[[In-content Ad]]