Stimulus plan could bring state tax cut

JEFFERSON CITY, Mo. -- Economic stimulus plans pending before Congress could trigger a state tax cut for businesses and some individuals, the governor's budget office said Friday.

While good news to taxpayers, the federal plans could force Missouri government to cut expenses, programs or personnel to make up for lost revenue, budget officials said.

"The governor is deeply concerned about the potential loss of revenue to the state," said Gov. Bob Holden's budget chief, Brian Long.

Business representatives, however, said Holden's concerns are unwarranted and the projections of lost state revenues are off base.

"It looks like the state may actually gain from it," said Ray McCarty, fiscal affairs director for the Missouri Chamber of Commerce. "But in any event, taxpayers are going to gain from it, and that's what the whole purpose of the bill is: to get our economy going again."

Holden participated in a conference call Friday about the stimulus package with seven other Democratic governors and U.S. Senate Majority Leader Tom Daschle, D-S.D., said Christy Gallagher, director of Holden's office in Washington.

The governors are urging Congress to support a stimulus package that provides federal tax relief without also triggering state tax cuts.

The Senate and House are taking different approaches toward the stimulus package. But both bills include provisions to accelerate the depreciation allowance that businesses can claim on equipment purchases when filing their federal income taxes.

Because many states link their tax codes to the federal one, Missouri and 44 other states also would see reductions in their corporate income taxes, state budget officials said.

A version passed by the U.S. House could result in a $70 million to $100 million reduction in state corporate income taxes, Long said. A version endorsed by a Senate committee could result in a $23 million to $33 million reduction in state corporate income taxes, he said.

But McCarty questioned those figures.

He used an example of a $1,500 computer purchase by a business. With a 30 percent depreciation allowance under the more generous terms of the House bill, a business in the highest tax bracket could save $186 in federal taxes, he said.

The state's lost income-tax revenue would be $17, McCarty said. But that doesn't include the $63 in additional sales taxes that the state could gain. Businesses are exempt from sales taxes on equipment used to manufacture products, but items such as computers don't always qualify for that exemption, he said.

State budget officials said they focused on the lost revenue because it is a certainty. The potential gains from a stimulus package are harder to calculate and may take longer to materialize, they said.

President Bush has requested a Nov. 30 deadline for passage of a stimulus package. Missouri lawmakers would not be able to act quickly enough to counteract any revenue losses this year, budget officials said.

The timing of the tax breaks "could cause havoc with the state budget before any positive (effects) work their way into the budget," said Tom Kruckemeyer, chief economist in the state budget office.

Long said he would recommend that Holden make immediate budget cuts -- potentially hitting important services -- if the House version is passed. Since the fiscal year started July 1, Holden already has withheld $323 million that had been budgeted for state agencies.

Passage of the Senate version might not result in state budget cuts, because it contains a provision that could increase federal Medicaid funding to Missouri by up to $70 million -- more than enough to offset any tax cuts, Long said. In fact, the state could come out ahead under the Senate version.

Congress is expected to reach a compromise containing elements of both versions.