JEFFERSON CITY, Mo. – Sen. Andrew Koenig has gotten a head start on Gov. Eric Greitens plan to reform the state’s tax credit system.
During his campaign, Koenig repeatedly stressed the need for fiscal responsibility by specifically attacking the state’s current tax credit system, and his first major bill as a Senator would cut or completely eliminate a dozen state tax credit programs.
“I view [these credits] as nothing more than corporate welfare,” Koenig said while presenting the bill during a Senate Ways and Means Committee hearing. “The number of tax credits we hand out surpasses what we spend in all departments beyond mental health, education, and social services.”
“When we hand out more than $600 million in transferable tax credits and the corporate tax only brings in 280 million, there’s an opportunity cost,” Koenig said later. “If we want to make priorities of funding education and new roads, I think we shouldn’t be handing out corporate welfare.”
Specifically, the bill would eliminate the Seed Capital, Brownfield Demolition, and Qualified Research Expense tax credits, but the credits most affected by the bill are the Low Income Housing tax credit (LIHTC), the Neighborhood Preservation tax credit, and the Historic Preservation tax credit. The cap on the LIHTC would drop from $160 million to $90 million, from $16 million to $1 million on the Neighborhood Preservation credit, and from $140 to $50 million on the Historic Preservation credit.
Many of those testifying in favor of the bill were corporate representatives. David Overfeldt of the Missouri Retailers Association said the bill was necessary to free up funds to give the state more flexibility in economic development policy.
“This doesn’t remove the tax credits, it just restores some sanity to what’s going on,” Overfeldt said.
Those testifying in opposition to the bill did so because the cuts would greatly affect their own organizations. Jorgen Schlemeier, representing the Missouri Workforce Housing Association, said the LIHTC was created in the 1980s specifically to unleash the ability of the private sector to create better facilities, decentralized state mental hospitals, and veterans homes that were subject to the whims of government.
Catherine Edwards of the Missouri Association of Area Agencies on Aging opposed cuts to the Senior Citizens Property Tax Relief tax credit in the bill. Koenig’s bill would make the credit applicable only to homeowners and not renters.
“Eliminating this tax credit would only aggravate the situation,” Edwards said. “Many of our seniors rely on this program to offset taxes to stay in their homes.”
Koenig had a strong ally on the bill in Sen. Bob Onder, who sits on the committee, who agreed with Koenig’s assertion that the current tax credit amounted to “corporate welfare.” The $575 million in tax credits given out by the state of Missouri, Onder said, was more than the state paid in employee benefits for all state employees.
“This isn’t just crony capitalism, it’s more like the Russian oligarchs,” Onder said.
However, Sen. Bob Dixon was more skeptical. He noted the tax credits were not grants, but a form of investment. He also questioned the priorities of the Senate in changing tax policy without first addressing some problems inherent in the system. Dixon suggested a better use of the state’s time would be consolidating some school districts, reducing the number of state representatives and allowing counties to merge some offices given a lack of willing candidates for those positions.
“Shouldn’t we consider a reform of the structure of state government before we start giving corporate income tax breaks or eliminate tax credits?” he asked. He reportedly spoke on a similar topic in a Senate Rules, Joint Rules, Resolutions and Ethics Committee hearing just a few minutes earlier.
Koenig’s bill would also cut Missouri’s corporate income tax down to four percent, which would reduce Missouri’s corporate tax rate to the lowest level in the nation of states that have a corporate tax rate.
Based on last year’s revenue numbers, that tax cut would cost the state $97 million, but the tax credit reductions or eliminations would cut $149 million from the government programs, essentially giving the bill a positive fiscal note of $52 million to the state.
The bill is not Koenig’s only bill dealing with tax credits. He also has a bill to make them non-transferable. He believes the transferability of Missouri’s tax credits makes them unconstitutional.
“For one, our constitution specifically says we can’t just hand out property or money to corporations,” Koenig said. “By making it transferable, it doesn’t actually have to offset a tax they actually have.”
The bill will face a committee vote in the next Ways and Means Committee’s executive session.