The tax debate-House Bill 253

Over the past two weeks we have seen, and heard, much discussion over the Missouri Legislature's tax cut package, House Bill 253. This is a bill the House and Senate passed with bi-partisan support that later was vetoed by the governor. This veto is one that the Missouri Legislature will attempt to override in September.

As you know, I'm a common-sense kind of girl, and I believe in looking at the facts on both sides of an issue. The majority of what has come out in the news thus far seems very skewed to one side or the other, making it difficult to understand what in the world this bill, if passed, would do. So my column this week is dedicated to shining some light on this issue.

House Bill 253 phases in a tax cut for all Missouri taxpayers slowly and carefully over a period of 10 years. Safeguards have been included so that in order for the "decrease" to take place, an "increase" in revenue must have first taken place. The bill covers many tax-related items, however the major sticking points seem to be over the income tax portion of the bill. Those are the following:

* Modifies the individual income tax rate table. Beginning with the 2014 tax year, the maximum tax rate on personal income will be reduced by 0.5 percent over a period of 10 years. However, the reduction can occur only if the tax revenues collected in the current year exceed those collected in any of the three prior fiscal years by at least $100 million. After the rate reduction is fully phasedmin, the maximum tax rate will be 5.5 percent. If the federal government passes the Marketplace Fairness Act of 2013, or similar legislation, the maximum rate of tax on personal income will be reduced an additional 0.5 percent (Sections 143.011 and 143.021);

* Creates an individual income tax deduction for business income and phases it in over a five-year period. A taxpayer will be allowed to deduct 10 percent of business income for the 2014 tax year and, once fully phased-in, will be allowed a 50 percent deduction for all tax years after the 2017 tax year. A shareholder of a S-corporation and a partner in a partnership will be allowed a proportional deduction based on his or her share of ownership (Section 143.022);

* Reduces the tax rate on corporate income by 3 percent over a period of 10 years, beginning with the 2014 tax year. However, the reduction can occur only if the tax revenue collected in the current year exceed that collected in any of the three prior fiscal years by at least $100 million. After the rate reduction is fully phased-in, the tax rate on corporate income will be 3.25 percent (Section 143.071); and

* Authorizes, beginning Jan. 1, 2014, an additional personal exemption of $1,000 for every individual with a Missouri adjusted gross income of less than $20,000. (Section 143.151).

As you can see, this is a methodical approach easing into the cuts until they are fully phased in over the period of a decade. Revenue has to increase before the next step of the tax cut can be enacted.

Much talk and concern have been regarding the Federal Marketplace Fairness Act, if ever passed by Congress, being enacted into law; and how this from the federal government could affect House Bill 253. The Federal Marketplace Fairness Act, if passed by Congress, would automatically reduce income tax rates by 0.5 percent. The concern is the reduction could trigger folks to amend their past tax returns due to a current Missouri statute that allows for refunds for up to three previous years -- possibly putting the state in an automatic downturn. This assumption is false. It takes one Missouri statute into consideration while ignoring another. A maneuver to apply a retroactive income tax rate to amended returns would be a violation of Article 1 Section 13 of the Missouri Constitution, which specifically states that no ex post facto law can be enacted. This issue has undoubtedly been used as a scare tactic.

The final item of contention I will mention is the prescription drug tax increasing in year 2015. This is a flaw in the bill. House Bill 253 was never meant to have any sort of tax increase in it. There are many rumors as to how and why this was slipped in, however I prefer to stay on what I know to be facts. The easiest way to correct this mistake is for the governor to call a "special" session to run concurrent with "veto" session. The flaw could be fixed at that time. If this doesn't happen, the Missouri Legislature will certainly fix it immediately upon session starting in January. This is plenty of time for the fix to take place prior to any increase. The Missouri Legislature has proved itself in the past few years to the dedication we have to the well being of our seniors and veterans. This will be fixed.

Education funding is always a concern, and House Bill 253 has the safeguards in place so that education funding will not decrease. With that being said, we all need to realize the method in which we are trying to fund education is clearly not working. I believe we need to fund the foundation formula 100 percent, something that has not occurred in the past many years. I may be "old school" but I believe when your mode of operation isn't working, you don't just stick your head in the sand and continue with the same mode of operation hoping it will miraculously change. Life doesn't work that way.

The facts are clear -- Missouri is shrinking. It could not be more obvious than the fact that we lost a congressional seat with the 2010 census. Another fact -- Missouri ranks 48th in economic growth over the past decade. We need to focus on growing Missouri. Other states have proved that a reduced tax burden is the key to a vibrant economy and in making the state a place where businesses want to start and/or move.

It has been nearly 100 years since Missouri taxpayers have seen a reduction in income tax rates. This couldn't come at a more important time, as we are all seeing tax increases due to federal laws and regulations like the Affordable Healthcare Act. House Bill 253 has no loopholes, no gimmicks and no lobbyist special favors. All Missouri taxpayers benefit. This bill simply stops the growth of government and allows Missourians to keep more of their hard-earned dollar, something surely we can all agree is way past due.

I urge you to delve into this bill yourself. It can be found at http://www.house.mo.gov/billtracking/bills131/billpdf/truly/HB0253T.PDF. Have a CPA you trust dissect it and give you their opinion. The Missouri Society of CPAs, the Missouri Chamber of Commerce, NFIB and many others have endorsed House Bill 253. With so much political posturing, I cannot express how important it is to tune out all the rhetoric and deal with the facts.

Please feel free to stop by or contact us anytime by calling 573-751-5471 or via email at holly.rehder@house.mo.gov.

Kindest regards, Holly