Governor's tax-cut outline has GOP senator's support

JEFFERSON CITY, Mo. -- A year after vetoing an income-tax cut, Missouri Gov. Jay Nixon pledged Thursday he would sign one if lawmakers agree to several contingencies designed to protect funding for public schools and other government services.

The Democratic governor said he had agreed with Republican Sen. Will Kraus on a new plan that would reduce the individual income tax rate by up to one-half of a percentage point. But the tax cut would kick in only if Missouri fully funds public schools, revenue grows by at least $200 million and places new limits on a pair of costly tax credit programs for the developers of low-income housing and historic buildings.

Nixon also said the tax cut must be targeted at individuals -- not, as some Republican lawmakers desire, at people who report business income through individual tax returns.

"Protecting an investment in our public schools, reining in wasteful tax credits that benefit special interests and putting more money into the pockets of working Missourians -- these are the basic elements of a sensible and sustainable tax bill that I would sign," Nixon told members of the Missouri Press Association and The Associated Press during an annual event at the Governor's Mansion.

"If a bill gets to my desk that violates those principles, I will not hesitate to veto it," Nixon said.

The governor vetoed a bill last year that would have cut income taxes for both individuals and businesses, citing concerns that it could have drained funding for public schools and contained technical drafting problems.

Kraus, who has been leading the tax-cut effort in the Senate, said he plans to present the details of his agreement with Nixon to other Republican senators next week. It was unclear Thursday whether the plan could generate enough support to pass the Republican-led Senate and House, which has been considering larger tax cuts without as many contingencies.

Kraus said he is willing to push for the new plan, even though it's pared back from his original proposals.

"My goal is to cut taxes on Missourians," said Kraus, of Lee's Summit. "To take what you know you can get is better than to pass a bill that you know you can't get."

Kraus estimated a one-half percent cut in Missouri's 6 percent individual income tax rate would reduce state revenues by about $400 million.

A bill sponsored by Kraus that is pending in the Senate is estimated by legislative researchers to cut taxes by nearly $928 million annually when fully implemented. It would gradually reduce Missouri's top tax rate by a full percentage point while also phasing in a 50 percent reduction for business income reported on individual income tax returns. Those incremental tax cuts would be contingent on continued state revenue growth of at least $100 million. The bill also would increase the tax deduction for individuals with incomes below $20,000.

Nixon said Thursday he opposes the special tax deduction for business income. Republicans have said that provision is aimed at small businesses and would help counter a similar tax exemption enacted in Kansas. But Nixon said it would "primarily benefit well-heeled corporate partnerships like law firms."

"There is no evidence anywhere that these schemes do anything to create jobs," Nixon said.

The alternative plan outlined by Nixon would cut the individual income tax rate by one-quarter of a percent only after schools are fully funded and Missouri has at least $200 million in revenue growth. That could delay a tax cut for several years, because Missouri's K-12 school funding is more than $550 million short of what's called for under state law.

Under the plan discussed by Nixon, an additional one-quarter of a percent income tax cut would kick in if legislators reduce the amount of tax credits flowing to developers of low-income housing and historic buildings. Specifically, Nixon wants the cap on historic preservation tax credits lowered to $90 million annually from its current $140 million and the limit on low-income housing tax credits set at $110 million instead of its current $135 million.

The two tax credit programs have been a sticky issue in the Legislature for several years. Some senators want deeper cuts while other lawmakers have opposed any cuts to the programs.

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