State Taxes and the State Budget

Discussions regarding the General Revenue side of the state budget should not be limited to state income and state sales taxes, but should include tax credits, as well. In the previous fiscal year (FY 2013), approximately $630 million dollars in tax credits have been redeemed. While tax credit programs have been very successful in some areas, the numbers of tax credit programs continue to grow, they are not appropriated by the legislature and redemption of the credits is very difficult to predict. The unpredictability of the redemption calls for a discussion of good accounting practices and legislative responsibility.

By law, the legislature is required to submit a balanced budget. Can we really submit a well-thought balanced budget with an undetermined, large, looming credit that will surface at a future date? Do our businesses budget the same way? What about our personal household budgets?

While tax credits are noted as being a reduction of revenues collected, the redemption of a state tax credit is quite similar to an expense item for a business or a household. If a business needs to replace an old piece of equipment or a family needs to replace a major kitchen appliance, they include the estimated cost in their budgets. Should we not apply these same common sense accounting practices to state government?

Without weighing the merits of one tax credit program over another, we could increase the accuracy and reduce the unpredictability in our state budget with some simple accounting measures. Discussions might include the possibility of incorporating the tax credit program in the state budget-setting process, considering appropriate levels of tax credit redemptions per category and fiscal year, and/or developing procedures for handling multi-year tax credit projects.

Our tax credit growth has been outpacing revenue growth. Of all fifty states, Missouri has the 16th lowest state income tax and the 14th lowest state sales tax rate, but ranks as the 3rd highest in Low Income Housing Tax Credits and the 2nd highest in Historic Preservation Tax Credits. Meanwhile, Missouri ranks #34 in funding for K-12 education and #42 in funding for higher education according to a September 2012 Report from the Missouri Division of Budget and Planning. (See table)

Responsibility and common sense work well at home. These same traits can help us appropriate a more predictable budget that has both short and long-term benefits for our state.

Kathryn Swan

State Representative

District 147