Missouri budget takes hit as taxpayers cash refunds

ST. LOUIS -- Tax credits from the federal government will provide a windfall for some families with multiple children, but officials say they'll also mean $95 million in revenue losses for the Missouri budget.

As taxpayers begin receiving $400-per-child refund checks and seeing increases on their pay stubs, state lawmakers are worrying about the lost tax revenue and how to deal with the shortage.

Tom Kruckemeyer, chief economist for the state Division of Budget and Planning, said the tax changes hold some provisions that boost the state budget and others that reduce tax revenue.

"The negatives in this tax law easily outweigh the positives," Kruckemeyer said.

The most costly provision for the state was the increased deduction for married couples, which will cost the state an estimated $90 million, Kruckemeyer said. Missouri will also lose $30 million because of more generous write-offs for corporations.

Renee Godsey, the division's assistant director of budget, said the federal government provided some one-time fiscal relief connected to federal programs, but not enough to outweigh losses in other areas.

Made up in cuts

The effects of the tax cuts, passed in May, were factored into the state's fiscal 2004 budget estimates. Because the state did not raise taxes, the revenue losses were made up in cuts. Kruckemeyer said preliminary estimates show the state losing $95 million again next year as a result of the tax changes.

Muhammad Q. Islam, chairman of the economics department at Saint Louis University, said the state budget could benefit if taxpayers spend their refunds and, in turn, increase the state's sales tax intake. Kruckemeyer said that impact would be limited because the general sales tax rate is only 3 percent and some items are not taxable.

Islam said the tax credits, along with across-the-board income-tax cuts, could continue consumers tendency to spend their extra money.

Statistics have shown consumers were spending, not saving, the money they received during the refinancing boom, which has slowed in recent weeks, Islam said.

Kruckemeyer said the largest predicted benefit of the tax changes would be the child tax credits, which would bring the state an estimated $12 million. Because the credits reduce taxpayers' federal deductions, they increase taxable income. Julie Robinson, spokeswoman for the Missouri Department of Revenue, said the most the state will collect on a single $400 tax credit is $24.

While the state budget struggles with further losses, taxpayers like Robert Gladser of St. Louis welcome the refunds.

"I'm pretty down in the hole so whatever money I do get is a blessing," said Gladser, 40, who said he planned to use the money for bills and other expenses, but nothing out of the ordinary.

Others said they would save their refunds.

Debi Schiller, 41, of Eureka said she deposited the $800 she received for her two sons, ages 10 and 15, into a savings account. However, Schiller said she was not saving for anything in particular.

"What are you going to do," Schiller said, "send someone to college?"