Missouri House mulls taxes with Kansas in its sites

JEFFERSON CITY, Mo. -- With Kansas as the reference point, Missouri business groups on Tuesday urged lawmakers to cut income taxes, while education officials expressed fears that reduced revenue could result in school funding cuts.

The testimony before a House committee came as a not-for-profit group began running ads against Missouri legislation that would cut individual and corporate income taxes by three-quarters of a percentage point during the next five years, while gradually raising the state sales tax by a half cent. Though less sweeping than a Kansas tax cut that took effect this year, the Missouri proposal has been touted as a way to keep pace -- or at least not fall too far behind -- the state's western neighbor in an ongoing border battle for businesses.

"Kansas is specifically targeting Missouri businesses," sponsoring Sen. Will Kraus, R-Lee's Summit, told the House Ways and Means Committee. "I believe if we do nothing, we're going to lose Missouri businesses."

The Senate already has passed the bill, which is projected by legislative researchers to reduce Missouri revenue by between $477 million and $670 million annually when fully implemented.

The Missouri Budget Project, a St. Louis-based not-for-profit that analyzes state financial issues, has put the eventual cost of the legislation at $960 million annually. The group has begun running a radio ad against the legislation, marking the first time in its 10-year history that it has done so. The ad suggests the tax cut could hurt funding for important services such as schools.

That concern was echoed during testimony Tuesday by the superintendent of the Lee's Summit School District and lobbyists representing at least five organizations for teachers and school administrators.

Missouri's public school districts receive about $3 billion annually in basic state aid and would receive an additional $65 million next year under a budget plan passed by the House. That still would fall about $620 million short of what's called for under a 2005 school funding law.

'Race to cliff'

Cutting tax revenue would make it more difficult for Missouri to catch up to its school funding targets, said Lee's Summit schools' superintendent David McGehee.

"Why in the world would Missouri want to make the same mistakes as Kansas? Let's not race them to the edge of a self-inflicted fiscal cliff," McGehee said.

A Kansas law that kicked in this year reduced individual income taxes and waived all income taxes for almost 200,000 businesses whose earnings are reported on individual income tax forms. Kansas lawmakers are working to close a budget gap, and Gov. Sam Brownback has proposed to keep the state sales tax at 6.3 percent rather than letting it drop to 5.7 percent as scheduled in July.

The Missouri proposal would stop short of the Kansas law by gradually exempting just half the business income that is reported on individual income taxes. Even with a half-cent increase, Missouri's sales tax would remain lower than all of its neighboring states except Oklahoma.

Lobbyists for four of the state's largest business organizations testified for the legislation.

Woody Cozad, a spokesman for the Save Missouri Jobs coalition that advocates for a response to the Kansas tax cuts, said Kansas saw more inquiries from out-of-state businesses after its tax cuts passed. He also pointed to figures released in January by the Kansas secretary of state showing the state set a record of 15,000 filings for new business entities last year.

"Kansas is not going to collapse. It's not going to implode. It's not going to bankrupt," Cozad said.

Save Missouri Jobs began running TV ads in November featuring a little girl who implores Missouri's leaders to respond to the new tax breaks in Kansas.

Missouri House Ways and Means Committee Chairman Andrew Koenig, R-St. Louis County, said he supports reducing the state income tax and offsetting a portion of the lost revenue by raising the sales tax. He said the committee could consider changing the bill to lower its overall hit to state tax revenue, perhaps by reducing the size of the income tax cut.

He said the panel also may consider adding a small sales tax increase dedicated to transportation -- perhaps one-tenth of a percent. The Senate previously passed a 1-cent transportation sales tax that would go to a vote of the people. Koenig said he believes that is too large and likely would fail.

Koenig said the House committee could vote on a revised version of Kraus' legislation as soon as next week.

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Tax bill is SB26.

Online:

Legislature: http://www.moga.mo.gov

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