GOP legislators present new tax-cut legislation

Missouri Senate Republicans took the first steps toward advancing new tax-cut legislation at public hearings Thursday morning, where supportive business groups cited competition from neighboring states and education and mental health leaders renewed concerns about potential funding cuts.

Senators Will Kraus, R-Lee’s Summit, and Eric Schmitt, R-Glendale, each presented bills they’ve introduced, which would cut personal income tax rates, business tax rates and the taxes paid by small corporations and partnerships. Schmitt separates the personal and business reductions into two bills, whereas Kraus combines them.

“Last year, there was a breakthrough on tax policy….” Schmitt said of a similar bill that passed the General Assembly last year but was vetoed by Gov. Jay Nixon. “The veto override was not sustained, so we are here for the sequel.”

Representatives from business groups like the Missouri Chamber of Commerce and the Associated Industries testified in support of the bill, while the Missouri National Education Association and a lobbyist for the Community Mental Health Centers stood in opposition.

And while the particular pieces of legislation are new this session, the arguments remain much the same.

Proponents of the cuts point to competition from surrounding states, where six of Missouri’s eight neighbors have passed recent tax cuts, and argue that Missouri needs to do the same to attract businesses, create jobs and grow the economy.

“There is a fiscal note for us doing nothing… in terms of the money, jobs and talent that will go elsewhere,” Schmitt said.

Opponents, on the other hand, argue the cuts would significantly reduce the state’s total revenues, forcing the governor and Legislature to cut back on state funding for education, mental health services and infrastructure.

“We all want lower taxes, but we also want good schools, and we want roads,” said Sen. Paul LeVota, D-Independence. “The point (of the governor’s veto) was we shouldn’t demolish revenue and hurt our other responsibilities.”

The individual rate deductions would be gradually phased-in and take Missouri’s top tax bracket from 6 to 4 percent. The business cuts would phase in a 50 percent reduction over five years.

The income rate reductions would take effect each year only if the net general revenue collected was $100 million greater than the highest amount of revenue collected in any of the previous three years. The triggers, Kraus said, would mean the cuts only happen if the state is bringing in more money.

“So the cut is paid for with the growth of government, so there are no cuts off of core budgets,” Kraus said. “We’re just returning taxpayer dollars to them from the growth of government.”

Legislative researchers predict Kraus’ bill would reduce general revenue by between $163 million and $268 million in fiscal year 2017 and the total revenue reduction once fully implemented would approach $1 billion, according to the fiscal note. Schmitt’s business income reduction would reduce revenues by more than $31 million in fiscal year 2015, $62 million in 2016 and $92 million in 2017.

Both supporters and opponents of the cuts cited recent tax measures passed in Kansas and the “border war” along the state line in Kansas City. While supporters said businesses in Kansas City are jumping the border in pursuit of friendlier tax policies, opponents said Kansas has seen lower revenues than expected and begun cutting education funding.

Chuck Pierce of the Missouri Society of Certified Public Accountants said he would advise clients of his that if they ran a small business that filed their business income as part of their personal, they would be better off living in Kansas no matter what side of the border they did business in.

He said a contractor working in Kansas City would have a substantial advantage if he lived on the Kansas side: “He needs a garage and a place to park his truck, and he would be way better off in Kansas.”

But Jim Moody, who spoke on behalf of community mental health centers, refuted the praise for Kansas.

“The idea that Kansas is having this unmitigated growth… they are not growing they are retracting, which may be the policy goal.” He said the state is collecting more than $500 million less in revenues this year than it did in 2012.

Otto Fajen, with the Missouri NEA, said some political leaders have set the goal of fully funding the state’s education foundation formula, but the tax cuts would drastically dampen the chances of that happening.

“Our big concern about these bills is that they purport to make a big change in the revenue structure, and in the long haul will make it difficult to get (to the funding goals) and be able to sustain it,” Fajen said.

He also took the chance to knock the state of education in some of Missouri’s neighbors. “Kansas and Oklahoma are national leaders — in cuts to education spending,” he said. “The tax cuts worked, it cut taxes, but in terms of investing in public education that may be a difficult lift.”

Some of the Senate Republicans, however, were unfazed by the idea of the government having less money to spend.

“There are some of us who contend that bigger government is not better, and less costly government is a good thing,” said Sen. Ed Emery, R-Lamar.

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