Missouri General Assembly
1:11 am
Fri March 28, 2014

Nixon Threatens Veto Of Any Tax Cut Bill That Fails To Curb Tax Credits

Missouri Gov. Jay Nixon and some potential allies in the latest legislative battle over tax cuts stepped up their attack Thursday on two fronts.

Just as the General Assembly was leaving for its long weekend, the governor issued a statement making clear that the tax-cut measures that the House and Senate have been considering so far don’t meet his standards for approval.

And a Washington-based group issued a study that concluded that tax cuts haven't helped most other states — including neighboring Kansas — to improve their economies.

Nixon brought up a familiar topic: his efforts to curb the state’s tax credits, which now cost the state $600 million a year.

“Until the General Assembly takes action to protect Missouri taxpayers and reform this out-of-control spending, discussion of tax cuts is a nonstarter,” Nixon said.

The governor cited “overwhelming evidence and growing bipartisan consensus on the need to rein in wasteful tax credit expenditures.” 

He singled out the two latest audits by Auditor Tom Schweich — a Republican — that were critical about the state’s tax credit programs, especially the credit used for low-income housing.

Nixon said that Schweich’s reports are “unequivocal evidence that these programs squander taxpayer dollars and fail to generate sufficient returns for our economy.”

A few weeks ago, the governor thought he had forged a compromise led by state Sen. Will Kraus, R-Lee’s Summit. That proposal included curbs on tax credits and decreed that any tax cuts wouldn’t take effect until the state’s prime aid program for public schools — called the “foundation formula” — had been fully funded. The program now allocates almost $600 million less annually in aid than what the formula calls for.

But Krause has had to drop the two requirements to gain Republican Senate support. “We’re working with the governor, but I also have to work with the legislature, and a number of other senators,” he said in an interview. “There were some things that they wanted … I’m trying to work everybody toward the middle and get something done (so) that we can give some tax relief to Missourians.”

Studies question benefits of tax cuts

Republican legislative leaders in both chambers, along with some business groups, say that tax cuts are necessary to attract and keep business and boost the state’s economy.

But some tax-cut critics highlighted a study of how Missouri’s western neighbor — Kansas — has fared since it slashed state income taxes two years ago.

“Tax cuts have had no noticeable effect on growth of the state’s economy,’’ said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities and co-author of the report.  The center is nonpartisan, but some critics note that it is aligned with progressive interests.

Leachman said in an interview that the facts are clear.  He pointed to the report's observation:

“Kansas’ tax cuts this year are costing the state about 8 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. State data show that the revenue loss will rise to 16 percent in five years if the tax cuts are not reversed.”

The report also said, “In truth, Kansas is a cautionary tale, not a model.  As other states recover from the recent recession and turn toward the future, Kansas’ huge tax cuts have left that state’s schools and other public services stuck in the recession, and declining further — a serious threat to the state’s long-term economic vitality.”

Leachman pointed to a previous report by the center, released in 2013, that showed mixed results for at least 11 states that had made significant income tax cuts since the 1990s but before the 2008 national recession kicked in.

Six of those states — Arizona, Louisiana, New Mexico, Ohio, Oklahoma and Rhode Island — had made the cuts since 2000. Of that group, "three states saw their economies grow more slowly than the nation’s in subsequent years, and the other three saw their economies grow more quickly,” the 2013 report said.

But the conclusions were clearer for five other states that had slashed taxes the most in the 1990s, the report added.  Those states were Colorado, Connecticut, Delaware, Massachusetts and New York.

“The top five tax-cutting states saw job growth of less than 0.3 percent per year, on average, compared to 1 percent” for the rest of the country, the 2013 report said. “States with the biggest 1990s tax cuts grew jobs during the next economic cycle at an average rate one-third the rate of states that were more cautious.”

Leachman said the point was simple: “Tax cuts have landed with a thud.”

Legislative supporters, who sharply disagree, have made clear they are not about to change course. 

Meanwhile, some of the state tax-credit supporters are privately predicting that the General Assembly will once again fail to reach consensus on curbing the state’s tax-credit programs.

If so, that could further complicate any tax-cut fight and make it more likely that Nixon may seek a replay of last summer — when he vetoed a tax cut bill, and its supporters were unable to amass enough legislative support to override him.

Jefferson City correspondent Marshall Griffin contributed to this report.