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Tax cut headed back to the Senate for approval

   

JEFFERSON CITY, Mo. — Missouri Republicans took their first stab at rewriting the state’s tax code last week, sending legislation to the governor’s desk that would shift some of the tax burden from income tax to sales tax.

Sen. Will Kraus, R-Kansas City
Sen. Will Kraus, R-Kansas City

The legislation, Senate Bill 26, would institute a sales tax, change the corporate income tax rate as well as the individual income deduction for business income, among other provisions. It mirrors efforts in surrounding states like Kansas, which Republican lawmakers pledged to try and duplicate.

Kansas lowered their individual income tax rates and their tax rates on business income significantly last year, raising concerns among lawmakers about the possibility of losing individuals and businesses on the western end of Missouri looking at the more favorable tax code in Kansas.

Sen. Will Kraus, R-Lee’s Summit, sponsored the bill. He has said repeatedly throughout session that his bill is designed to keep Missouri competitive and keep as many businesses in the state as possible.

The legislation is the most sweeping change to the tax code being considered by the General Assembly. Along with reducing individual income taxes, corporate income taxes and allowing for larger deductions on business income, the bill would also increase the rate of use and sales taxes.

Kraus, wary of losing votes from Republicans who campaigned against raising taxes, pulled several members of the Republican caucus off the floor before debate began, whipping last-minute votes for the measure which some Republicans felt did not go far enough. Other Republicans, long touting their party’s desire to reduce the size of government and lessen the tax burden on Missouri citizens, were largely supportive of Kraus’s bill.

“We have a body of evidence for both sides of this argument,” Rep. Todd Richardson, R-Poplar Bluff, said during floor debate. “We know what the results of this are, and in the states that are moving toward this model, we see more economic activity and more growth across the board.”

Rep. Andrew Koening, R-St. Louis County, said the principle of the bill was to move toward a consumption based tax system, which he said is more stable and would attract more revenue to the state.

“When you tax productivity, productivity goes down,” Koening said. “We’ve placed a lot of exemptions in the sales tax for basic necessities to protect the lowest earners in this state. This bill will not burden them, it will let them keep more of their income.”

While Republicans and their supporters claim the legislation will give the average Missourian more disposable income, Democrats blasted the plan saying it would make deep, irreversible cuts in the state’s general revenue fund and result in the cut of essential services.

Many of them pointed to Kansas — which is projecting a major budget shortage of several hundred million dollars — as evidence that the plan would be disastrous for Missouri. They also raised concerns that the fiscal note for the bill did not accurately measure the impact of the proposed changes.

“When this body is $600 million short of funding the school formula that we adopted, I think it’s pretty irresponsible to pass a plan that is going to make cuts to our general revenue,” Jon Carpenter, D-Kansas City, told The Missouri Times. “Even if you take the low-end estimate of the impact, you’re talking about $300 million lost.”

Carpenter said he shared Kraus’s concerns about losing businesses and individuals to Kansas, but said that tax reform had to be as budget-neutral as possible. Carpenter sponsored House Bill 864, the Democratic tax reform bill, which included internet and sales taxes, reduced the number of tax brackets and, according to Carpenter, “drastically simplifies” the tax code.

The fiscal impact of the Kraus’s bill seems to depend largely on the political party you ask. While some Democrats and progressive groups have claimed the bill could cut nearly $1 billion from the state budget, the fiscal note for the bill and Republican backers estimate approximately $228 million impact by 2016.

Minority Leader Jacob Hummel, D-St. Louis, formally challenged the note. Hummel moved for a postponement of debate on the floor until the oversight division of legislative research could reevaluate the fiscal note associated with the bill.

“If you ask 10 people in this building, they’ll have 10 different answers on what this is going to cost us and why,” Hummel said. “Estimates have ranged from $300 million to more than $900 million, and that’s a huge disparity. We cannot vote on this legislation until the committee on legislative research and oversight has time to reevaluate the fiscal impact of this bill.”

Hummel’s complaints were numerous, stating that inflation was not calculated and that the bill instituted an “overly restrictive definition” of business income. Groups opposing the measure, like the Missouri Budget Project, estimate the bill will result in a $986 million dollar loss in revenue by the time it is fully implemented in 2019.

The bill was sent back to the Senate, which would need to approve the measure with the three House amendments. Should they approve it, the bill would move to the desk of Gov. Jay Nixon, who has not yet stated definitively whether he will veto the bill.

However, the morning after the bill passed through the House, Nixon’s staff posted the following tweet on his Twitter account: “Instead of raising taxes on Missouri families, #moleg should work together to bring our tax dollars home. #medicaid.”

Hummel echoed Nixon’s pivot toward the need for Medicaid expansion over tax reform, saying in a release that the failure of Republicans to act on expansion made the 2013 General Assembly “a total and abject failure.”

Should Nixon veto the legislation, it is unclear whether Republicans have the numbers to override him. With 18 House Republicans voting against the measure, the final vote was 90-68, short of the 109 votes needed to override a veto.

To contact Collin Reischman, email, collin@themissouritimes.com or via Twitter at @Collin_MOTimes.