TAXES: LEGISLATION TAKES A BITE DOLLAR-WISE

One of the lingering effects of the 1993 session of the Missouri General Assembly will be higher taxes, which will amount to more than $500 million.

The additional taxes are aimed at upgrading schools, increasing the state's unemployment fund and increasing access to health care in the state.

Bob Knuth, executive director of the Taxpayers Research Institute of Missouri, a division of Associated Industries of Missouri, complained last week that businesses will have to carry a disproportionate share of the new taxes.

In addition, Knuth said Missouri businesses are likely to face increased taxes as a result of forthcoming federal tax legislation that is being considered.

Jo Frappier, president of the Missouri Chamber of Commerce, points out that businesses have reached the point where they simply cannot just pass higher taxes on to customers.

Said Frappier: "The days of simply raising prices to cover higher taxes are over. To remain competitive today, business has to cut costs, which often means layoffs and holding the line on salaries."

Cape Girardeau Chamber of Commerce President Bob Hendrix agrees that businesses are about to hit the breaking point on new taxes. Not only are there new state taxes, but the federal health care reform bill and other measures will take their toll as well.

"It's kind of an uneasy feeling right now," said Hendrix.

In the school reform bill, businesses get hit in three areas: corporate income taxes are increased from 5 percent to 6.25 percent of adjusted gross income; the federal income tax deduction for corporations is reduced to 50 percent beginning Sept. 1; and the federal income tax deductions for individuals, proprietorships, partnerships and sub S corporations will be limited to $5,000 for individual returns and $10,000 for joint returns.

Knuth said that $95 million will come from corporate income taxes in the school reform package. In addition, $215 million will come from individual income taxes and $40 million from property taxes that will have to be raised by some local school districts.

About 295 of the state's 538 school districts will have to raise property taxes to reach the bill's minimum levy of $2.75 to keep state aid.

The effect of the corporate increase is that most corporations' tax liability will increase by 57 percent.

"We all share in an improved school system and the benefits created by a more capable work force," said Knuth. "We had hoped that any final tax package would reflect this reality and be spread more evenly among all citizens."

Knuth said the increased burden on businesses could have a negative impact on the state's economy and the competitiveness of Missouri companies.

Other taxes passed this year include $140 million to rescue the state's unemployment compensation trust fund, and a $25 million tax increase on cigarettes and smokeless tobacco to pay for the health care measure.

The unemployment compensation increase will raise the taxable wage base from $7,500 to $8,500 for 1994 and 1995, increase the surcharge from 30 to 40 percent for 1994, and increase employers' ratings by 3/10 of 1 percent for 1994.

Knuth contends the tax increases passed in this session are the highest passed in 40 years. He noted that these increases exceed the last two big tax increase years of 1963, when there was a one cent sales tax hike, and 1971, when income taxes were increased.

In addition, Knuth pointed out that the one cent sales tax for education, offset by major property tax cuts in 1982 known as Proposition C, are now eroding away as the legislature allows school districts to back off from the reduction in property taxes.

State Rep. Mary Kasten, R-Cape Girardeau, said she fears government is placing too much emphasis on taxes and believes people need a break from tax hikes for a while.

"We just cannot continue to keep putting taxes on people," said Kasten. "The corporate tax we passed this year does not appear to be much, but it does impact our ability to be competitive with other states."

Kasten agrees that good schools are important to the state's quality of life and its ability to attract jobs, but also feels there is a balance that has to be maintained.

Said Kasten: "We have to keep a balance between quality of life and business, so that we can continue to be the state with taxes low enough for businesses to make a profit. We just can't afford to lose any businesses from this state."

Hendrix says too often taxes are put on corporations as a way of avoiding taxes on individuals. "All taxes on business eventually have to be passed on to the consumer. Most people think businesses and corporations pay the taxes, but they don't. They're passed on to the consumer," said Hendrix.

"You can talk about taxing corporations as the easy way out, but those taxes usually get passed on."

Hendrix said he is still trying to determine the exact impact of legislation passed this year on local businesses.

But several business leaders fear that legislation to deal with workers' compensation may not have gone far enough to end the skyrocketing premium increases that have hammered businesses in recent years.

"Between unemployment compensation and workers' comp, we're quickly approaching 40 percent of payroll," said Hendrix.

The Missouri Chamber also cites data from the Census Bureau showing that state and local taxes are seeing their slowest growth since 1952.

Frappier said if other states are having slower tax growth, then the ultimate impact of the 1993 tax increases on the state's economy could be devastating.