Some Missouri Republicans want tax cuts, but many lawmakers fear impact on state’s bottom line
Missouri Gov. Eric Greitens and Republican lawmakers are angling for tax cuts during this year’s legislative session. It’s a policy push that the GOP officials believe will make the state more attractive to businesses and potential residents.
But with the state facing yet another tough budgetary year, members of both parties worry that cutting taxes will deprive Missouri of revenue needed to fund basic state services. Some fear that Missouri is marching in the same direction as Kansas, where tax cuts have been criticized for hurting the state.
“I find it interesting that the people that are in front of the tax cut issues are not the people that sit day and night trying to figure out how to craft a budget every year for the state,” said state Rep. Marsha Haefner, a Republican from Oakville and a member of the House Budget Committee. “We’re going to have to be honest about tax cuts. In that, if we cut certain taxes other taxes are going to have to go up.”
Both Greitens and GOP lawmakers are pairing reductions in taxes with paring down popular tax breaks. In fact, Democrats have been advocating for some aspects of Greitens’ proposal for years. But whether lawmakers can get something to the governor’s desk before May is uncertain.
Greitens made tax cuts the centerpiece of his State of the State speech, which was overshadowed by his admission that he had an extramarital affair before he was governor. He released more details of his plan on Monday.
Among other things, the plan cuts the state’s income tax to 5.3 percent. It also reduces Missouri’s corporate income tax from 6.25 percent to 4.25 percent and establishes an earned income tax credit.
Missouri lawmakers overrode then-Gov. Jay Nixon’s veto of an income tax cut in 2014. That law, which gradually lowers the state’s income tax to 5.5 percent, still hasn’t completely gone into effect yet.
“It is a bold plan. It is going to reduce taxes on 97 percent of Missourians,” Greitens told reporters in Jefferson City this month. “And that’s what we want to do. We want to cut taxes for the people of Missouri.”
Before the governor proposed his tax cut, Sen. Bill Eigel, R-St. Charles, and Rep. Travis Fitzwater, R-Holts Summit, put forward their own plan. Eigel said the last draft would lower the state’s top income tax rate to 5.2 percent. It would then decrease that rate by 0.1 percent a year if the state takes in more general revenue than the previous year.
“I think there’s compelling messaging as we move away from the income tax, what will start to grow is our population,” Eigel said. “And as our population grows, that’s going to broaden the tax base that we’re drawing from in the first place. I think that’s the best thing we can do.”
Unlike Greitens proposal, Eigel and Fitzwater’s legislation increases Missouri’s fuel tax by six cents. It also lowers the cap on the amount of tax credits Missouri doles out every year.
“And the amount of money we’re talking about moving into the transportation realm from what we have right now, we’re talking about less than 2 percent of our general revenue dollars,” Eigel said. “I think there’s a compelling case that we can make that something as important as our infrastructure spending should be prioritized a little bit higher on the list.”
Specter of Kansas
Because Republicans hold commanding majorities in the Missouri House and Senate, passing a tax cut should, at least on the surface, be fairly easy to accomplish. But that’s not how Senate President Pro Tem Ron Richard sees things.
The Joplin Republican represents a district close to Kansas. That state instituted a string of tax cuts in 2012 that proved to be financially detrimental.
“I like low taxes too,” Richard said earlier this year. “But I’m going to be very careful that we’re not endangering this building, this institution, the taxpayers after I’m gone.”
Kansas’ tax cuts blew such a big hole in the state’s budget that lawmakers there ended up having to raise taxes. But it’s not just the Sunflower State’s tax cutting spree giving lawmakers and observers pause: Missouri lawmakers are looking at steep budget cuts for the second consecutive year. Jeremy LaFaver, a former Democratic state lawmaker who lobbies in Missouri and Kansas, attributes the funding woes to nearly two decades of business and income tax cuts.
“To a large extent, Missouri is already where Kansas is,” LaFaver said. “The biggest difference is that Kansas did it really, really quickly. It’s kind of like the frog in the frying pan analogy where a slow, long heat-up process, the frog will sit there. And that’s where Missouri’s at.”
The other reason why lawmakers here are nervous is because Missouri’s constitution makes it very difficult for the legislature to pass tax increases if they are later needed. Most have to go to a statewide vote. And recent efforts to boost taxes have failed at the ballot box.
“A few folks who can afford bells and whistles kind of advertising can very much control a public vote on something,” said Empower Missouri’s Jeanette Mott Oxford, who has studied the impact of tax cuts for many years. “There tends to be a knee-jerk reaction to anything that increases state revenue — which will be called a tax increase.”
In response to concerns about the impact of tax cuts on the state budget, both Greitens and Eigel’s plans include reducing some popular tax breaks.
Both proposals reduce or eliminate Missouri’s deduction for federal taxes. They would also enter into the “Streamline Sales and Use Tax Agreement,” a multi-state compact aimed at collecting revenue from online retailers. And Greitens plan would end a 2 percent discount that businesses get for turning in their taxes on time.
Eigel noted that a number of states have passed tax cuts since Kansas’ ill-fated push, adding that “a lot of people have gotten to know Kansas as the way not to cut taxes.”
“I think if there were ever a time to talk about tax reform and move forward with tax reform, it’s probably now,” Eigel said. “If you look at what our colleagues at the federal level were able to accomplish, certainly if you were able to make progress in Washington, D.C., I think we can make that progress in Jefferson City.”
According to documents sent to St. Louis Public Radio by Greitens' office, the Office of Budget and Planning estimated that the tax plan would cost the state about $21 million in general revenue. The Department of Revenue estimated the general revenue cost would be around $38 million. That is much less money than the tax cut passed in 2014, which could end up costing the state $620 million when fully implemented.
Greitens spokesman Parker Briden said the analysis takes into account the state income tax immediately dropping from 5.9 percent to 5.3 percent. He also said the analysis doesn't take into account any economic growth, and added most economists would contend that any cost below $50 million is effectively "revenue neutral."
Additionally, some Democratic lawmakers have been advocating for ending that 2 percent business discount and collecting taxes from online retailers sales for some time. Before Greitens released details of his tax plan, Oxford said she was heartened that Eigel’s legislation removes the federal income deduction.
“It’s still a really smart policy decision to get rid of an area where we’re an outlier. And almost all the benefit is to people that are housing and food secure instead of people who are not housing and food secure,” said Oxford, adding that Missouri won’t get as much revenue from the change as in years past because the federal tax overhaul doubled the standard deduction. “Because if we invest at folks at the bottom, we’ll have better education outcomes and we’ll have more community well-being in terms of things like crime.”
Still, Democratic lawmakers like state Rep. Crystal Quade, D-Springfield, question whether cutting taxes is a bigger priority than funding state services. She noted that her local chamber of commerce told her to “hold off” on tax cuts, which the freshman lawmaker said was telling.
“I think folks want us to take us breath and take a minute and try to figure out what’s going on,” Quade said. “You know, Missouri has one of the lowest unemployment rates, yet we’re still in a budget crisis.”
St. Louis Public Radio’s Marshall Griffin contributed information to this story.
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