Nixon renews case on veto of proposed Mo. tax

JEFFERSON CITY, Mo. -- Missouri Gov. Jay Nixon pressed his objections Tuesday to what he called a "risky, untested scheme" that would reduce the state's income tax rate for the first time in more than 90 years.

Nixon vetoed the tax cut legislation last week, and on Tuesday, he urged higher education leaders to tell their state lawmakers how the tax cut could hurt their schools. He said that when fully implemented, the tax cut would cost state government $800 million, which would be the equivalent of eliminating state support for higher education institutions.

The Democratic governor said lawmakers can either support the tax cut or higher education, but not both. He said he strongly opposes the tax measure and "will use the energy of my office to continue to talk about it." After Nixon's comments to higher education officials, his budget director told reporters a possible tax cut would be considered as Nixon decides how to handle the upcoming year's state operating budget that takes effect July 1.

Nixon has not yet signed the budget into law and has authority to block spending on specific items.

The income tax cut was among the Republican-led Legislature's top priorities and was designed as a response to a similar but more sweeping tax proposal last year in neighboring Kansas. Supporters of Missouri's tax cut called it a "responsible way to make Missouri more competitive" and have said Nixon's veto signals the Show-Me State isn't interested in retaining its businesses.

Two of Missouri's leading business groups -- Associated Industries of Missouri and the Missouri Chamber of Commerce and Industry -- also have criticized Nixon's veto.

Missouri lawmakers return in September to the state Capitol to decide whether to attempt to override any of Nixon's vetoes. To override the veto of the tax legislation, every Republican House member would need to support the effort unless some of Nixon's fellow Democrats can be persuaded.

The governor has outlined philosophical, financial and technical objections to the proposed tax cut. Among the reasons he has cited for the veto, Nixon contends the legislation would eliminate existing sales tax exemptions on prescription drugs and college textbooks.

"The magnitude of the choice here is significant, very significant," Nixon said. "Throwing a huge tax cut that's sloppily worded with huge amounts of unintended consequences like raising taxes on seniors on prescription drugs and students on buying their books is not the way to move our economy forward."

Under the tax cut proposals, there would be a phased-in 50 percent deduction over five years for business income reported on individual income tax returns. The state's corporate income tax rate also would be trimmed nearly in half while the top tax rate for individuals would be reduced from 6 percent to 5.5 percent over the next decade.

The tax rate reductions for corporate and individual taxes would be effective only if state revenue grow by at least $100 million annually over their high point from the previous three years.

Nixon's administration argued the revenue trigger has issues because it does not account for tax refunds and would be based upon a prior year's change in revenue.

Some of the tax cuts would not depend upon an increase in revenue. Officials estimated state government could lose $1.2 billion under one portion of the measure if Congress passes federal legislation that allows states to more easily collect online sales taxes. Missouri tax's legislation calls for a one-half percentage point cut in the maximum income tax rate if that happens.

Budget Director Linda Luebbering said it is expected to shrink state revenue by at least $300 million. Missourians also could file for a retroactive tax refund for the previous three years, which would increase the price tag.

Luebbering said the federal legislation eventually could permit Missouri to collect an additional $210 million annually.

Nixon's administration estimated the exemption for business income would cost state government about $18 million in the upcoming budget year and more than $270 million annually after it is fully phased-in.