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Government, Politics & Issues

Nixon expresses 'serious concerns' over tax cut plan, criticizes budget bills

This article first appeared in the St. Louis Beacon: Gov. Jay Nixon indicated Friday that he had serious misgivings about a broad-based tax cut bill that the Missouri General Assembly has sent to his desk.

But Nixon, a Democrat, stopped short of saying whether he would sign or veto the measure, which was crafted to compete with neighboring states, such as Kansas, that have aggressively cut taxes.

Among other things, state Sen. Eric Schmitt's bill would gradually cut personal income taxes by a half of a point over the next 10 years. It would also phase in over five years a 50 percent deduction on business income on individual tax returns. It would also phase in a cut almost as large on corporate income taxes, by lowering the tax rate from 6.25 percent to 3.25 percent over 10 years.

Schmitt told the Beacon earlier this week that there's also a "fiscal note for inaction" to compete with states like Kansas, which has instituted aggressive tax cuts for corporations and individuals. (Kansas has had to cut state spending dramatically as a result.)

But some Democrats have argued the bill would drain general revenue dollars needed for vital services. The Missouri Budget Project, for instance, estimated that the bill could cost over $800 million when it is phased in all the way.

And at a press conference on Friday, Nixon said he had "serious concerns" about Schmitt's legislation.

"Taking more than $800 million out of our state budget -- the equivalent of wiping out all of public higher education or closing all our prisons or eliminating the Department of Mental Health -- is not the fiscally responsible approach," Nixon said. "Again, now is the time to strengthen our state's foundation of fiscal discipline, not undermine it with reckless Washington-style gimmicks."

Asked if his "serious concerns" would lead to a veto, Nixon said "we'll review it very carefully, but I have serious concerns about its impact."

"The bill's not on my desk yet and there may be other parts of it that are worth noting at the time I take my constitutional responsibilities," Nixon said. 

If Nixon vetoes the bill, it could spark a showdown at the General Assembly's veto session. Lawmakers in both chambers see the bill as a major priority. In fact, House Majority Leader John Diehl, R-Town and Country, called the passage of the legislation as "probably one of the most significant days in terms of tax policy in this state."

But the bill fell six votes short of a veto-proof majority in the Missouri House. Three Republicans voted against the bill, although seven Republicans didn't cast a vote on the measure. Three Democrats voted in favor of the bill.

Before Nixon's press conference, two business groups -- the Missouri chapter of the National Federation of Independent Businesses and the Associated Industries of Missouri -- sent out statements urging Nixon to sign the bill. 

NFIB director Brad Jones said, “The best economic development tool a state can have is lower taxes." And AIM president Ray McCarty noted that bill has triggers that delay full implementation of the bill if the state's general revenue doesn't grow by a certain amount.

"While the calculation is cumbersome and complicated, we are happy that the business income deduction was preserved as we originally drafted it and that general tax relief has passed the General Assembly this session," said McCarty. "We look forward to Gov. Nixon's approval of this responsible approach to tax reduction."

Nixon reiterates budget criticism

The General Assembly on Thursday also sent Nixon the bills that encompass state's budget for the 2014 fiscal year. And while Nixon praised some aspects of the document, he also repeated criticism expressed earlier this week.

For one thing, Nixon criticized how the budget included provisions that appeared to make the governor choose between a program to help low-income elderly renters, and early childhood and health-care programs. The budget would only fund popular programs -- like early childhood education for the developmentally disabled, health care for the blind and funding for low-income clinics -- if Nixon signs legislation eliminating a tax credit for low-income elderly and disabled people who rent their homes, which is part of a "circuit breaker" tax credit.

Nixon said earlier this year he wouldn't sign a bill changing the circuit breaker without comprehensive changes to tax credits. He said on Friday that the "budget irresponsibly pits children with developmental disabilities against low-income seniors." And he said lawmakers should spend the last week of session trying to reverse the situation.

"It's clear that the problem with First Steps is solvable and I hope they spend the next week getting it solved," said Nixon, referring to the program for the developmentally disabled. "We're certainly looking forward to working with the legislature for a path forward on that area to make sure we protect an important program that they've put at risk here."

"I think that First Steps is in direct peril unless they take action to assist us in getting some sort of patch or solution to go further," he added.

Nixon also reiterated his announcement that he will have to make layoffs and service reductions to the Division of Motor Vehicles. Budget negotiators from the House and Senate agreed to a version of the state's budget for the coming fiscal year (FY2014) that includes only eight months worth of funding for the Division of Motor Vehicles, in effect a one-third cut of its annual budget. That decision reflects Republican criticism of the new method in which the Department of Revenue issues driver's licenses. 

Some lawmakers -- including Senate Appropriations Chairman Kurt Schaefer, R-Columbia -- criticized Nixon's move to lay off staff as unnecessary. He and others say that the legislature will fund the rest of the agency's budget if they make certain concessions.

But Nixon said on Friday that he had few other options.

Most Missourians, he said, "want the legislature to come to town, do their work, authorize budgets and head back to their homes where the part-time legislature has great time to spend with their constituents," Nixon said. "Missourians did not say that we're going to have a situation where we operate our budgets on a series of continuing resolutions and cause a constant budgeting process to run through."

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