Closing 'loopholes' isn't right

By Daniel P. Mehan

JEFFERSON CITY, Mo. --Gov. Bob Holden says business isn't paying its fair share. Despite the fact that Missouri leads the nation in job loss, with 77,000 fewer jobs than just one year ago, the governor wants employers to pay more. While stating that he will veto pro-jobs legislation such as workers' compensation and tort reforms, the governor has built his plan to address gaping budget shortfalls on the backs of Missouri employers.

Ironically called the "fair share" plan, Holden has framed common business incentives and accounting practices as "loopholes" and those employers that take advantage of these methods as "tax cheats." The governor claims that closing these "loopholes" would impact only 2 percent of Missouri's big companies. This simply is not true.

In reality, "closing loopholes" would better be defined as "raising employer taxes. Of the $166 million Holden seeks to gain from "closing loopholes," more than $100 million would hit nearly every Missouri employer, both big and small. All of the "loopholes" are common incentives or accounting practices that are allowed in other states. Eliminating them would put Missouri at a competitive disadvantage.

The most significant is the governor's $77 million proposal to eliminate single-factor apportionment, a method of allocating income for tax purposes whereby a company computes the percentage of sales made in Missouri over sales in other states to arrive at a percentage of income that must be taxed in Missouri. This approach typically is used by companies with large investments in payroll and infrastructure in Missouri and is allowed in many other states, including neighboring Illinois and Iowa. Calling the common practice a "loophole" is a stretch by an accountant's definition.

The governor also proposed, under the guise of "closing loopholes," to tax non-Missouri source income. This $46 million tax increase penalizes multistate companies that choose to do business and provide jobs in Missouri. Not only would this provision be damaging from an economic-development standpoint, the move likely would not stand up in court. Other states have attempted to tax such income, and state courts have ruled against the state in the majority of cases. Basing Missouri's budget on a provision that would drive more jobs out of the state -- and likely would be thrown out of court -- clearly is irresponsible.

Another "loophole," which would cost employers $18 million annually, would remove a discount established more than 40 years ago to offset the costs of collecting and remitting employee income taxes. Although the discount has not increased over the years, the administrative burden has grown to include additional responsibilities such as child-support transfers. Let's be honest. This too is a tax increase, not the "loophole" it's been labeled by the governor's press office.

Perhaps "closing loopholes" is a term that plays well in the media, but fiscally the governor's plan makes little sense. Missouri is leading the nation in job loss, yet the administration continues to send smoke screens to build support for policy that will drive even more jobs out of our state.

Missouri employers are tired of the administration's rhetoric and ask the governor to do his fair share. Reform our worker's compensation and tort systems so employers can bring state government spending back in line without sacrificing the livelihoods of Missouri's working families.

Over the last two years, employers have had to make the tough decisions to cut expenses to keep their businesses operating within their means. It's time the state did the same.

Daniel P. Mehan is the president and CEO of the Missouri Chamber of Commerce and Industry.