The Missouri House of Representatives had to modify its proposed cuts to the state corporate tax rate Thursday after receiving information that the fiscal impact of the cuts had been incorrectly calculated.
Representatives learned from the Missouri Department of Revenue on Wednesday that the budget package passed last week would result in a budget shortfall of approximately $45 million, said Rep. Scott Fitzpatrick, R-Shell Knob, chairman of the Budget Committee. He said the DOR scored the revenue for the budget based on the current corporate rate of 6.25 percent, not on the modified rate of 3.5 percent.
Department of Revenue Director Joel Walters in a Thursday statement said the agency realized the mistake after a May 1 hearing on the tax proposal. However, House lawmakers then made substantial changes to the bill, prompting another fiscal update. Walters said the agency fixed its calculating error in the subsequent estimate, but didn't notify lawmakers of its earlier mistake because that version "was believed no longer relevant."
Fitzpatrick said the shortfall could be approximately $300 million next year, based on continued implementation of Senate Bill 509, which went into effect in 2014 and required cuts to personal income tax of .1 percent per year beginning in 2017 and continuing until a .5 percent cut had been completed.
A compromise, Fitzpatrick said, was to amend the taxation omnibus (Senate Substitute Bill 884) and raise the corporate tax rate to 3.9 percent.
"There's a range on the fiscal impact of this bill," Fitzpatrick said.
He said it could lead to a deficit next year of up to $15 million. Or it could result in a surplus of $2 million.
"I feel much more comfortable with this as a compromise position," Fitzpatrick said.
However, other legislators weren't as comfortable with the compromise.
Rep. Crystal Quade, D-Springfield, proposed an amendment which failed to set the rate at 4.2 percent, and said at that rate the revenue is neutral (neither a deficit nor a surplus). Quade said that during discussions, Fitzpatrick was among legislators who agreed with that assessment. Asked about the numbers, Fitzpatrick said that at 3.9 percent, the worst-case scenario was negative $15 million. The best-case scenario was positive $2 million.
"3.9 is the lowest number where we have a potentially revenue neutral bill," Kirkpatrick said.
Quade said that at 3.5 percent, Missouri would have the second-lowest corporate rate in the country. It would also have the second lowest at 3.9 percent, she said, and the second-lowest at her proposed rate of 4.2 percent.
Rep. Dan Carpenter, R-Kansas City, suggested changing the corporate tax rate to 4.25 percent to be certain revenue matched need.
"The current rate is six-and-a-quarter. We can do a major reduction here," Carpenter said. "Instead, we're going down to 3.9 percent and we'll be $15 million in the red."
On top of that, Carpenter said, it is only the DOR that shows the budget being revenue neutral.
"That's also the one estimate that has been deeply flawed throughout this entire process," Carpenter said.
The Associated Press contributed to this report.