JEFFERSON CITY, Mo. — One week after vetoing a tax cut bill passed by almost an entirely party-line vote, Gov. Jay Nixon continued to defend and further explain his opposition to a measure that he says will result in “draconian cuts,” to the state’s budget.
House Bill 253, which the Republican majority has touted as a bill that will stimulate economic growth by lowering the state tax burden on businesses and individuals, was the focus of Nixon’s public comments to an event hosted by the Department of Higher Education, as well as a meeting with Nixon advisors, Tuesday.
The bill includes reductions in the state income tax rates and broader exemptions for business income. Republicans say the bill will allow more businesses and individuals in the state to retain and therefore spend their own money, stimulating creating more economic activity in the state. Democrats argue the bill makes unfair and that arbitrary changes to the tax code and endangers essential state services as a result in large losses of revenue. Plus, Nixon’s office recent discovered a provision in the bill that creates a $200 million prescription sales tax increase, unintentionally.
Nixon spoke at an event earlier today hosted by the Department of Higher Education. The event, the Governing Board Forum — which brings the boards of all of Missouri’s public institutions of higher learning together — gave Nixon an opportunity to discuss the relation of the bill’s veto to the protection of education funding.
“House Bill 253 is the single greatest threat to public education in this state I’ve ever seen,” Nixon told the audience at the event in the morning. “This is punching an $800 million hole in our budget based off a reckless experiment we saw in Kansas.”
Tuesday afternoon, Nixon dispatched Budget Director Linda Luebbering and Chris Pieper, Senior Legal and Policy advisor, to meet with reporters in the Capitol to discuss objections to the bill in further detail.
One of the provisions of the bill is pursuant to the state collecting more revenue. The bill would only enact certain tax liability reductions if the state collects at least $100 million more in general revenue than in the highest of the three previous fiscal years. Supporters say this will force certain tax reductions to come only as a result of economic growth. Luebbering countered this measure by saying the bill language was not drafted properly. According to Luebbering, the $100 million trigger deals with gross revenue collections, not net collections.
“Missouri has a high rate of tax refunds,” Luebbering said. “So if we look at one year, where we collected $200 million more than in the previous three years, that would have triggered this provision if this was law. But the problem is that in that year, we collected $200 million more, but refunds were also much higher. In that year, net revenue increased by only $6 million, and yet if this bill was law, that would have trigged reductions in our tax rates, ultimately reducing our overall revenue.”
Pieper said he had concerns about several provisions of the bill that were not based on triggers, such as language allowing certain businesses to recalculate how much of their income is tax exempt.
He also said a portion of the bill that is contingent on the passage of the Federal Marketplace Fairness Act (FMFA) — which would reduce income tax levels by a half a percentage point in the state — would ultimately result in a loss of net revenue for the state, and the reduction was not based on any statewide increase in revenue.
“Once [FMFA] is passed, if it passes, for us to be fully compliant, the state has to allow people to go back and collect a refund based on that new half a percentage point reduction in their taxes,” Pieper said. “Those collections of a refund would actually offset any increase in revenue we’d get from the FMFA based on even the most generous studies of how much the FMFA can bring into our state.”
Pieper said the bill was “extremely complex” and a number of different triggers created uncertainty among businesses and investors, which he said would discourage economic activity in the state.
“Let’s also not forget, going back to that $100 million trigger, revenue collection is a lagging indicator of economic growth,” Pieper said. “During the 2008-2009 year, revenue collections went up significantly during a recession. Enough that this law would have been triggered, but the following fiscal year we lost $550 million in General Revenue collections.”
Pieper said if HB 253 been law at the time, the impact to state revenue would have been much larger.
“Just imagine that number along with a lower overall tax rate,” Pieper said. “That would have been a huge blow to our state’s ability to fund basic services.”
Nixon has spoken more extensively about this veto than any other before, perhaps to hope to sway both public opinion and a few key votes by the time the September veto session begins. The bill passed in the House by a vote of 103-51, almost entirely along party lines with three Republicans voting against the bill and nine people absent, seven Republicans and two Democrats. The Senate vote was 24-9, with Sen. David Pearce, R-Johnson County, voting no and Sen. Ryan McKenna, D-Jefferson County, voting yes, and one person absent. Republicans would need 110 votes in the House and 23 in the Senate to override the veto.
Collin Reischman was the Managing Editor for The Missouri Times, and a graduate of Webster University with a Bachelor of Arts in Journalism.