Nixon: Tax cuts bill spells disaster
Originally published April 22, 2014 at 1:15 p.m., updated April 22, 2014 at 11:20 p.m.
Gov. Jay Nixon promised Tuesday afternoon to veto a tax cut bill lawmakers sent him last week.
But he isn’t required to act on the bill until almost the end of next week, and did not say when he’d reject the proposed law.
“The language is clear,” Nixon told reporters at a Capitol news conference. “Senate Bill 509 says that, once this legislation is fully phased-in, the top bracket ‘shall be eliminated.’
“The result of this provision would be to wipe out 97 percent of all individual income tax collections in the state of Missouri.”
Budget and Planning Director Linda Luebbering told reporters Tuesday morning the language eliminating income taxes for all Missourians earning more than $9,000 in taxable incomes could cut around $4.8 billion a year from the state’s general revenue collections.
Nixon said: “It is hard to overstate the crippling impact this would have.
“Senate Bill 509 would force the outright elimination of the most basic services Missourians count on from their government — teachers would be laid off and schools would shut their doors.
“Prisons would close. Mental Health facilities would be shuttered. And the AAA credit rating we’ve boasted and boosted for decades would be downgraded.”
However, House Majority Leader John Diehl said Tuesday morning: “What we’re seeing is the same thing we saw last summer — a pattern of scare tactics and deception — to avoid addressing the real issue of whether or not Missourians deserve some of their money back.”
Cutting taxes has been a priority for many of the Republicans who control the state’s House and Senate.
“I think that argument that the governor is making is a little bit over-the-top,” Senate Majority Leader Ron Richard, R-Joplin, said Tuesday evening. “We think it’s a moderate tax decrease — and it doesn’t go into effect for two or three years.
“We think it’s a reasonable request — but we’re prepared to do what is necessary if he vetoes it.”
Senate President Pro Tem Tom Dempsey, R-St. Charles, added: “This is just all part of his game plan, to not sign a tax cut.”
And Diehl, R-Town and Country, told reporters the governor’s concerns are part of the “silliness that’s coming out on the tax bill, and the desperation tactics not to address the real issue of providing tax cuts for all Missourians and small businesses.”
But, Nixon said, since becoming governor in 2009, he’s not been afraid to cut taxes when they were targeted and helped improve the economy.
Like the bill he vetoed last year, the governor said, the new tax cuts measure causes more harm than good.
If he signed it into law, Nixon explained: “This bill would separate Missouri from every other state in the nation — as the only one unable to meet even the most basic obligations to its people.
“The consequence of a fiscal disaster on this scale would be devastating — and, because of the Hancock Amendment, extremely difficult to undo.”
Both sides agree the current law’s top tax bracket is people who make at least $9,000 a year in taxable income, and that they pay income taxes of $315 plus 6 percent of the income that’s more than $9,000.
The tax cut bill sent to Nixon last week aims to cut the top tax rate to 5.5 percent over a period of years — and only when the state’s revenue is at least $150 million more than the best income of the three previous years.
Supporters argue that means the state always will be taking in more money than the tax change would cut.
But Nixon said even the Legislature’s prediction of a minimum $600 million revenue reduction is too big.
And, he argued, because the proposed law doesn’t change the definition of the tax brackets, the current top tax bracket eventually disappears.
The governor got a legal opinion from Cheryl Block, a Washington University law professor and tax law expert.
“As presently drafter, the bill’s language appears to have the perverse result that those with incomes between $8,000 and $9,000 would be subject to a 5½ percent tax rate, while those over $9,000 would pay no tax at all,” Block wrote in a letter dated Monday.
Republicans also consulted an outside lawyer — former state Supreme Court Chief Justice William Ray Price Jr.
“While it is true that taxing statutes are to be construed against the taxing authority, that construction must be reasonable and not against the Legislature’s intent,” Price said in his letter, also dated Monday. “Based upon the plain language of full Senate Bill 509, it is my opinion Missouri courts would find that … the 5.5 percent tax rate would apply to all income over $8,000.”
Nixon said his goal over the next few days is to make sure that lawmakers “hear not just from their leadership, not just from their various vote-count-whips, but from their constituents — about how important the fiscal responsibility of their positions, and how the tax code is not something to be played with.”
By DAVID A. LIEB, Associated Press
JEFFERSON CITY, Mo. (AP) -- Democratic Gov. Jay Nixon raised new concerns Tuesday that a tax cut passed by the Legislature could have "cataclysmic" consequences for state revenues, but a Republican legislative leader immediately dismissed that as "absurd."
Nixon asserted that the legislation could eliminate taxes on all income over $9,000, busting a $4.8 billion hole in the state budget and forcing the closure of public schools, prisons and mental health facilities.
Although he didn't veto the bill Tuesday, Nixon made clear that he will do so in the coming days.
The tax cut "would devastate our economy, bankrupt our state, cripple our schools - and it cannot become law," Nixon said in remarks prepared for a series of news conferences across the state.
House Majority Leader John Diehl called Nixon's new criticisms "utterly ridiculous," ''laughable" and "absurd" and accused him of engaging in "a pattern of scare tactics and deception."
He said legislators would attempt to enact the tax cut by overriding Nixon's expected veto before the annual session ends May 16. An override would require a two-thirds vote in both chambers, meaning Republicans would need to vote as a block and pick up the support of at least one House Democrat. Republicans received the vote of one Democrat when they passed it last week.
"There is absolutely nothing wrong with this bill," said Diehl, R-Town and Country. He challenged Nixon: "Veto it today, and let's roll."
The governor's barnstorming campaign against the tax cut is similar to the tactics he used last year to defeat a more sweeping version of an income tax cut. After lawmakers passed that bill, Nixon said the hit to state revenues could have been over $1 billion in a single year. Republicans' support for the bill faded, and the House ultimately fell 15 votes shy of the 109 needed to override Nixon's veto in September.
Official legislative projections, based on research from the University of Missouri-Columbia, estimate that this year's bill eventually would reduce state revenues by $620 million annually.
The main provisions of the legislation would gradually reduce Missouri's top individual income tax rate and phase in a new 25 percent deduction for business income reported on personal tax returns. The incremental tax cuts would start in 2017 but are contingent on annual state revenue growth of at least $150 million over the high mark from the previous three years.
Missouri's top tax rate of 6 percent currently is charged on all income over $9,000. The legislation authorizes an annual one-tenth of a percent reduction in that top rate until it drops to 5.5 percent, which is the rate currently charged on income between $8,000 and $9,000.
The legislation states that once the top tax rate is lowered to 5.5 percent, "the bracket for income subject to the top rate of tax shall be eliminated." Nixon said that means a tax no longer would be charged on any income over $9,000, which was previously the top tax bracket.
He said that would wipe out 97 percent of Missouri's individual income tax collections and about two-thirds of the state's general revenue budget, "ultimately pushing Missouri into fiscal chaos."
No one else previously had interpreted the legislation that way.
Nixon's office provided a memo from Washington University law professor Cheryl Block backing up his interpretation.
But Republican legislative leaders countered with a memo from former Missouri Supreme Court Chief Justice William Ray Price Jr. rejecting that interpretation. Price said he believes courts would rule that the legislation sets a new top tax rate of 5.5 percent on all income over $8,000.
He pointed to a sentence in the bill immediately preceding the one Nixon singled out. That wording says the Department of Revenue Director "shall, by rule, adjust the tax tables" to carry out the provisions of the bill.
Republican legislative leaders said their caucus is more committed to this year's bill, which is less complex and less aggressive in the scope of its tax cuts.
"The governor is grasping at straws," said the bill sponsor, Sen. Will Kraus, R-Lee's Summit. "I think the bill on his desk will be overridden and it will become law."
Tax cut is SB509.
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