Tax cuts on tap again for Missouri legislators

JEFFERSON CITY, Mo. -- Stymied by a gubernatorial veto, Missouri lawmakers and business groups plan to try again -- and, potentially, again and again -- to enact an income-tax cut in 2014.

Republican legislative leaders pledge that an income-tax cut will be an early priority in their annual session that starts Jan. 8.

If Democratic Gov. Jay Nixon again vetoes the tax cut, an alternative legislative proposal is already in the works. And if the Legislature seems unlikely to succeed, a group financed by wealthy political activist Rex Sinquefield has prepared several initiative petitions to get an income-tax cut on the November 2014 ballot.

"We will still firmly push for and pursue significant tax reform, and it will include a tax reduction for Missouri's small business owners and families," said House Speaker Tim Jones, R-Eureka.

Vetoed

Nixon vetoed a bill in June that would have gradually cut Missouri's individual and corporate income tax rates and phased in a new tax deduction for business income reported on individual tax returns. Legislative researchers estimated the eventual cost at $540 million annually.

But Nixon contended it could have cost $1.2 billion in tax revenue in a single year and jeopardized funding for education, mental health care and other state services. Nixon also raised numerous other concerns about the legislation, including its potential to impose sales taxes on prescription drugs because of an apparent drafting error.

Despite a supportive advertising campaign financed largely by Sinquefield, Republican support for the bill waned in the House as Nixon mounted an aggressive cross-state tour defending his veto. A veto override attempt failed in September.

Nixon has said that for a tax cut to earn his support in 2014 it must be affordable and "directly tied to job creation." But he hasn't identified a specific threshold he considers affordable.

"We can't have some risky experiment that hopes that if a whole bunch of money disappears, that magic will happen, because our kids don't get educated on magic," Nixon said after lawmakers sustained his veto.

Supporters of an income-tax cut contend it could help spur the economy by encouraging business expansion and consumer spending and is needed to counteract recent tax cuts in neighboring states such as Kansas and Oklahoma.

2014 version

Rep. T.J. Berry, R-Kearney, who sponsored the vetoed bill, said he plans to pursue a slimmed down version in 2014 that removes "everything that the governor said he didn't like." Those excised provisions include one that would have triggered an even deeper state income tax cut if Congress enacted a law making it easier for states to tax sales made over the Internet.

Sen. Will Kraus, R-Lee's Summit, who handled the tax-cut plan in that chamber, already has pre-filed a bill for the upcoming session. It would gradually reduce Missouri's top individual income tax rate from 6 percent to 5 percent and would phase in a 50 percent reduction for business income reported on individual tax returns, but only if state revenue grows by at least $100 million annually. It also would raise the standard deduction for lower-income individuals and exempt the first $25,000 from corporate income taxes.

Unlike the bill vetoed in 2013, Kraus' new version contains no reduction in corporate income tax rates, which could shave more than $160 million annually off the eventual cost of the proposal.

Kraus said that change also is intended to quell critics who "wanted to say it's for rich businesses last time."

Other plans

If Nixon objects to this year's income tax cut legislation, Berry said he's working on a backup plan. His alternative proposal would exempt the first $100,000 or $200,000 of business income from Missouri taxes but not cut the tax rate for individuals. Berry said that would more directly target job creation.

If it looks like the Legislature may not be able to pass a bill that gets Nixon's approval, other tax-cut supporters may start gathering petition signatures to qualify an initiative for the ballot. They can't wait until the Legislature's May 16 adjournment, because the deadline to submit initiative petition signatures to the secretary of state's office is May 4.

The Grow Missouri political committee, which is financed by Sinquefield, already has filed several versions of income tax cut initiatives with the secretary of state's office.

"Having these initiative petitions filed gives us more chips, more cards in the game to play our hand out if we still don't feel that some of the reforms are being pushed and proceeded on in the Legislature," said Aaron Willard, the group's treasurer.

------

Follow David A. Lieb at: http://www.twitter.com/DavidALieb.