Nixon remains opposed to tax legislation

JEFFERSON CITY, Mo. -- Democratic Gov. Jay Nixon reaffirmed his opposition Thursday to a Republican-backed plan that would cut income taxes for individuals and businesses while raising the state sales tax for the benefit of schools, roads and a mental hospital.

Nixon suggested he was likely to veto the legislation, which could be sent to his desk as soon as next week.

"Increasing sales taxes on all Missourians and shifting the burden on to seniors and veterans on fixed incomes is not the right approach to growing our economy or creating jobs," Nixon said in a written statement.

His reaction comes after the House passed a bill Wednesday that would gradually increase the state sales tax by three-fifths of a cent over the next five years, with most of those revenue earmarked to schools and a smaller portion to state roads and the replacement of an aging mental hospital in Fulton.

Although Nixon focused exclusively on the sales tax increase, Republicans who hold a supermajority in the Legislature have emphasized the legislation's income tax cuts that would result in a net reduction of several hundred million dollars of tax revenue annually for the state.

The Senate, which previously passed a different version of the bill, could have taken up the House version Thursday and immediately sent it to Nixon. Instead, Senate leaders opted to give members more time to review the new version before deciding whether to give it final approval or ask the House for negotiations.

The bill's sponsor, Sen. Will Kraus, said he's willing to pass the House version but also is open to changes that could make it more appealing to Nixon.

"Our goal is to get something done and passed -- to cross the finish line -- that becomes law that has an impact on the state of Missouri and improves economics in the state," said Kraus, R-Lee's Summit, Mo.

The legislation stems from a desire among Missouri lawmakers to counter income tax cuts enacted in neighboring Kansas and Oklahoma as part of an ongoing battle among states to attract businesses.

The Missouri legislation would reduce the top individual income tax rate of 6 percent by two-thirds of a percentage point over five years, the first reduction in Missouri's income tax rate since 1921.

The corporate income tax would be gradually reduced by three-quarters of a percentage point. And a new 50 percent deduction would be phased in for business income reported on individual income tax returns.

The bill also contains several provisions meant to aid lower-income families and small businesses. It would nearly double the personal deduction on individual income taxes for those with adjusted gross incomes below $20,000 annually. And it would exempt the first $25,000 of corporate income from taxation.

The various tax changes would start in 2014 and be fully implemented in 2018, but each step would go forward only if state revenue rise by at least $100 million annually.

Legislative researchers estimate the bill would reduce state revenue by $438 million annually once fully implemented. The cost has been estimated at more than double that by The Missouri Budget Project, a St. Louis-based not-for-profit that has run ads against the proposal.

Nixon also had expressed opposition to an earlier Senate version of the bill, which had a slightly smaller sales tax increase and larger income tax cut.

But Kraus said the House version contains several provisions he had hoped would appease Nixon.

For example, the bill would earmark much of the new sales tax revenue to schools as opposed to placing it in general revenue as the Senate version had done.

The House also added a tax amnesty period backed by Nixon that would waive interest and penalties for overdue taxpayers who pay up between this August and October. That provision has been projected to generate tens of millions of dollars that the state would otherwise be unlikely to collect. Kraus personally opposes the tax amnesty provision but said he's willing to accept it if it helps the bill become law.

Senate President Pro Tem Tom Dempsey, R-St. Charles, Mo., said Republican senators would discuss how to proceed on the tax legislation during a private caucus meeting next week.