Tax-cut plan gains traction in Mo. House

Things are different this year.

That’s the message proponents of the Broad Based Tax Relief Act are carrying as they push the proposal that failed by 15 votes in last year’s veto session.

Now comprising House bills 1253 and 1297, the tax-cut measure stands to benefit Missouri businesses and their employees, but according to opponents, it also would threaten education and other state priorities.

The proposal calls for a gradual reduction of the state’s top individual income tax rate to 5 percent from 6 percent during the next 10 years and a 50 percent deduction for business income reported on individual income tax returns across five years.

Rep. Eric Burlison, R-Springfield, supports the measure.

“Missouri’s economy has been lagging behind other states. We ranked No. 48 in economic growth, so it’s clear we need to do something different,” Burlison said, referencing a 2012 economic study by free-market think tank Show-Me Institute. “I think we are one of the top states when it comes to using tax credits and other economic development tools, but those tools are clearly not working. My belief is that the reason they aren’t working is that politicians are horrible investors of other people’s money.

“I believe giving tax cuts to everyone is the wisest and most ethical way to spur the economy.”

This year, bill writers have removed language to tax Internet sales.

“Last year, they tacked on the streamlined sales tax. If the federal government had passed its Main Street Fairness Act, it would have created a framework for us to tax businesses on Internet sales in a more streamlined manner. That was the bulk of the bill, and it created potential pitfalls and confusion,” Burlison said. “All of that has been stripped out.”

The combined bills passed a third reading in the House last month by a 106-49 vote.
Rep. Charlie Norr, D-Springfield, was among the nay votes.

“Too much hinges on fully funding the school formula, and I don’t think this will help us do that. I think it could have a negative effect,” Norr said, adding he thinks strengthening educational funding is key to growing the state’s economy, which supports Gov. Jay Nixon’s effort to fully fund the formula within two years.

Burlison said Missouri isn’t keeping pace with neighboring states. He pointed to Kansas, which recently lowered income taxes and has an unemployment rate a point below Missouri, and Tennessee, which has no income tax and historically has outpaced Missouri’s population.

Norr said the state’s tax structure already is competitive, citing a recent ranking by the Tax Foundation that listed Missouri as the 16th best business climate in the nation.

Proponents of the move include the Missouri Chamber of Commerce and Industry. Tracy King, the state chamber’s vice president of governmental affairs, said at least a dozen bills tied to cutting taxes are in play in both the House and Senate, but she expects a straightforward option such as the Broad Based Tax Relief Act to end up on the governor’s desk.

She said the Missouri chamber has long called for decreasing the tax burden on businesses and individuals, but that doesn’t mean the group that represents nearly 3,000 employers statewide isn’t a proponent of educational funding.

“There are those who have pitted businesses against education, but we believe we can support both,” King said, adding the plans with the most traction all have safeguards against falling revenue.

As proposed, the Broad Based Tax Relief Act stipulates state revenue must increase by $150 million in the prior tax year before the rates fall.

Opponents such as the Missouri Budget Project have said cutting revenue to the state is irresponsible.

Missouri Budget Project Executive Director Amy Blouin said cutting taxes doesn’t guarantee job growth.

“The mythology behind tax cuts doesn’t pan out,” Blouin said.

She pointed to U.S. Bureau of Labor Statistics data that nonfarm employment in Kansas increased 0.7 percent between December 2012 and December 2013, when Missouri posted job growth of 1.3 percent.

In 2013, she said 65 counties in Kansas increased their property tax levies to make up for lost educational funding when state revenue declined.

“Every indication is that is not a good path to go down,” Blouin said.

Drury University political science professor Dan Ponder said he believes a tax-cut proposal, in some form, would be passed by both the House and Senate this session. What is unclear is how election-year politics would impact a potential veto override.

“I think they will pass some version of it, but my guess is that the governor will veto unless substantial things occur to make it more palatable for him. And then, given that it is an election year and threats from various interest groups, I would not be surprised to see the veto overridden,” Ponder said.

The bill was reported to the Senate for a first reading Feb. 20 but was not scheduled for a hearing by press time. In the House, votes fell largely along party lines.

With every Republican present voting for the measure, and the GOP representing a majority in both chambers, Ponder said it might indicate a willingness to override a veto this year.

He said party leaders could have threatened Republicans who went against the grain last year with formidable opponents in this summer’s primaries if they didn’t toe the line on such a major issue. That could explain why most are on board with this year’s proposal. However, he said the threats, if real, might mean little with a veto session coming weeks after August primaries.

Norr said if the bill passes and cuts begin to take place, reverting to the status quo won’t be an option.

“How are you going to go backwards? How are you going to raise taxes once you cut them? Nobody can do that now,” Norr said. “In my experience, these kinds of things don’t help middle-income and low-income people at all.”

Burlison said he believes there is a sense of unity among Republicans on this year’s measure.

“I think the vote on the floor shows solidarity among the Republican members of the House,” Burlison said.