Politics & Issues
5:59 pm
Tue April 22, 2014

Nixon's Latest Tax-Cut Battle With General Assembly Resembles Earlier Fight

With a new tax-cut package on his desk, Missouri Gov. Nixon has zeroed in on a new “fatal flaw’’ that his administration says could wipe out 65 percent of the state’s general-revenue income used to fund most state services and aid to public schools.

Missouri Capitol
Credit (Marshall Griffin/St. Louis Public Radio)

The details may be different, but the basic argument mirrors last year’s fight, when Nixon successfully killed a tax-cut bill by highlighting flaws that he said would cost the state's treasury – and the public – far more than the bill’s backers had intended.

And this time, as he did last year, Nixon is traveling the state to make his case – with most of his stops at schools or universities that his allies say stand to lose if the tax cut stands.

Legislative leaders once again are challenging the governor’s claims, just as they did last year. Both sides also are armed with dueling legal opinions from outside experts.

But amid all of the latest tax-cut frenzy is a key difference from last year’s battle: Time.

In 2013, the General Assembly approved the tax-cut measure near the end of legislative session, giving Nixon all summer to blanket the state – and media airwaves – with his objections. Backers of the tax cut even brought in Texas Gov. Rick Perry but that couldn't generate enough momentum to override Nixon’s objections during the September veto session.

This time, the governor has only 15 days to act – and not much longer to make his case. That’s because the General Assembly put the bill on his desk early enough to force Nixon’s hand -- and to allow legislators to attempt to override any veto before the session ends May 16.

Since the bill landed on Nixon’s desk on April 16, he must act by May 1.

George Connor, head of the political science department at Missouri State University – where the governor was appearing Tuesday --  said that both sides will have limited time to energize average Missourians who otherwise may not be paying attention.

“The way the issue is framed is going to dictate how they react to it,” Connor said, referring to the public.

Would bill eliminate income taxes for most Missourians?

The chief provisions in the tax-cut bill – dubbed SB 509/496 -- would cut business taxes by 25 percent and lower the tax rate for individual taxpayers to 5.5 percent from the current 6 percent.  The bill also sets up new tax rates for various income levels below $9,000 a year.

Jay Nixon
Credit / File photo

Backers note that the new rates don’t kick in until the 2017 calendar year, and only if state income increases by $150 million a year.

But Nixon’s administration is zeroing in on one sentence in the five-page Senate bill: The bracket for income subject to the top rate of tax shall be eliminated once the top rate of tax has been reduced" to 5.5 percent.

The effect, his office says, would be to eliminate income taxes on anyone earning more than $9,000 a year and slash the state’s general-revenue income by about 65 percent.

“A fiscal impact of this magnitude would jeopardize even basic funding for education and vital public services and is likely to result in a downgrade to Missouri’s spotless AAA credit rating,” the governor’s office said in a statement.

Nixon spokesman Scott Holste said the problem sentence was discovered after the bill landed on the governor’s desk.

The governor also is circulating a letter from Cheryl Block, a professor at Washington University’s School of Law, that backs up his interpretation of what the errant sentence could mean.

Block said in an interview that she was asked by the governor’s office to look at the bill. Her letter, in part, states that “the bills’ language appears to have the perverse result that those with incomes between $8,000 and $9,000 (a year) would be subject to a 5.5 percent tax rate, while those over $9,000 would pay no tax at all.”

While emphasizing that she wasn’t implying any legislative intent, Block said in the interview that the tax-cut package was “badly worded’’ and that there was “a good chance’’ the measure would generate legal fights.

Legislative leaders countered with a statement from former state Supreme Court judge Ray Price, who said, “I believe based on the plain language of the full Senate Bill 509, Missouri courts would find that, after full implementation of the reduction, the 5.5 percent tax rate would apply to all income over $8,000.”

John Diehl
Credit Mo. House of Representatives

Associated Industries of Missouri, a business group, contended that Nixon’s interpretation “requires a very strained reading of the language of the bill.”

House Majority Leader John Diehl, R-Town and Country and slated to be the next House speaker, also contended during a afternoon news conference that the legal debate was Nixon’s attempt to force tax-cut backers to engage in “a constant game of ‘whack-a-mole.’"

The governor, in turn, offered equally combative language during an appearance in Kansas City. "The consequences of a fiscal disaster of this scale would be devastating," he said, according to the Kansas City Star.

"Nixon said there were only two possible explanations for how this happened," the newspaper reported. "It was either an accident or it was put in deliberately 'at the behest of ideological interests led by one St. Louis billionaire.' ”

The governor was apparently referring to wealthy financier Rex Sinquefield, who has long advocated eliminating Missouri's income tax as a way to attract more business to the state.

Policy or politics driving debate?

Regardless of what either side says, Connor added, “It’s the politics of it that’s driving this, not policy. The Republicans want to pass a tax cut, not because it’s good or bad, but because they want to pass a tax cut. Gov. Nixon is opposed to passing a tax cut.”

He added, “It’s the argument that you take back home to your constituents. It’s the argument that you try and sell when you’re on the campaign trail trying to run for higher office.”

To that end, the lines were drawn months ago.

Since last fall, Republicans and allied business groups have declared that a tax cut was a key plank in this year’s agenda, making no secret that it also would be a campaign issue this fall.

Meanwhile, Nixon said during his State of the State address in January that he would back a tax-cut bill only if the General Assembly first fully funded the state’s “foundation formula’’ that directs aid to public schools, and if the bill avoided cutting taxes for “S corporation”  businesses  -- such as law firms and lobbyists -- that he said don’t create most jobs.

Republican legislative leaders have increased school aid, but some have balked at his timetable for fully funding the formula. They also have objected to Nixon’s interpretation of which businesses deserve tax cuts.

On the surface, Republican legislators – especially in the Missouri House – appear more united now than they were last year, when 15 peeled off and sided with Nixon’s veto. Connor said he found the current solidarity intriguing since the GOP had threatened those 15 with primary challenges this summer, many of which failed to materialize.

Meanwhile, only one House Democrat – Jeff Roorda of Barnhart – has voted for the latest tax cut bill.  During last year’s fight, Roorda was among only three Democrats who voted for the bill. But then he opted against voting to override the governor’s veto.

This year, unlike 2013, the House vote for an override could be much closer. It needs 109 votes, meaning one Democrat must cross over to join the 108 Republicans. So far, it appears unlikely that Roorda -- who is running for the state Senate -- will do so. The 34-member Senate will need all 23 GOP votes.  Republican leaders will have less time to round up those votes, but that also means less time for potential defections.