Government & Politics

April 22, 2014

Missouri governor says flaw in tax cut bill is ‘crippling’

Thanks to one sentence in the bill, Gov. Jay Nixon thinks the General Assembly may be wiping away all taxes for those who earn more than $9,000 a year. He said doing so would strip away two-thirds of state revenue, punch a $4.8 billion hole in Missouri’s budget and ultimately force the closure of public schools, prisons and mental health facilities. But GOP leaders say the governor’s argument is “laughable.”

Republican lawmakers last week achieved one of their top goals for the year: passing a $620 million tax cut.

Gov. Jay Nixon contends they may have done far more.

Thanks to one sentence in the bill, the governor thinks the legislature may also be wiping away all taxes for those who earn more than $9,000 a year.

The governor said doing so would strip away two-thirds of state revenue, punch a $4.8 billion hole in Missouri’s budget and ultimately force the closure of public schools, prisons and mental health facilities.

“This bill would separate Missouri from every other state in the nation as the only one unable to meet even the most basic obligations,” Nixon said during an event Tuesday in Kansas City. “The consequences of a fiscal disaster of this scale would be devastating.”

House Majority Leader John Diehl called Nixon’s reading of the bill “laughable,” part of a pattern of “scare tactics and deception.”

The governor didn’t take action on the bill Tuesday. He did make clear a veto was inevitable. He traveled the state Tuesday ramping up opposition, even invoking the specter of a Republican mega-donor and anti-income tax advocate who he says could be the source of the fatal flaw in the bill.

Republicans showed no signs of backing down.

Diehl, a St. Louis County Republican, insisted the GOP majority believes the governor’s interpretation is wrong and has no intention of altering the bill.

“If we fix this alleged problem, there will be another problem and another problem,” Diehl said. “It’s like a constant game of whack-a-mole. There’s nothing wrong with this bill. We’re going to take it, and if he vetoes it, we’re going to override him.”

Missouri’s top tax rate of 6 percent currently applies to all income over $9,000.

The tax cut bill that passed the legislature would gradually reduce that top rate to 5.5 percent, which is the rate currently charged on income between $8,000 and $9,000.

That bill also would phase in a 25 percent deduction for business income reported on personal tax returns. In order for the tax cuts to occur, state revenues would have to grow by at least $150 million over the high mark of the previous three years.

Once the tax cut is fully implemented — in 2022 at the earliest — the legislation states that “the bracket for income subject to the top rate of tax shall be eliminated.”

Analysis by the governor’s office and Washington University School of Law professor Cheryl Block, who was asked to review the bill by Nixon, concluded that because of that provision no one earning more than $9,000 would pay state income taxes.

That would ultimately cost the state roughly 65 percent of the state’s total revenue collections in 2012.

“It is hard to overstate the crippling effect,” Nixon said.

He saw only two possible explanations for how the flaw got into the legislation. It was either an accident or, he said, it was put in deliberately “at the behest of ideological interests led by one St. Louis billionaire.”

Nixon was referring to retired financier Rex Sinquefield of St. Louis, who has given millions of dollars in recent years to candidates and committees

in hopes of eliminating the state’s income tax

. Last year, he nearly single-handedly funded the unsuccessful campaign to override Nixon’s veto of a similar tax cut proposal.

House Speaker Tim Jones balked at the accusation, saying voters gave Republicans two-thirds majorities in both the House and Senate based in part on the party’s pledge to cut taxes.

Republicans pointed to a legal opinion of their own provided by former Missouri Supreme Court Chief Justice William Price. He concluded that Missouri courts would find that the top income tax bracket would ultimately apply to everyone earning above $8,000.

Just before the sentence that Nixon is criticizing, Price noted, the bill mandates that the director of the state Department of Revenue “shall, by rule, adjust the tax tables” to carry out the provisions of the bill.

“The governor is grasping at straws to find flaws in the bill when there are none,” said Sen. Will Kraus, a Lee’s Summit Republican who sponsored the tax cut measure.

It would be foolish, Nixon countered, to put two-thirds of the state’s budget at risk in the hopes of convincing the courts that “the words ‘shall be eliminated’ don’t mean ‘shall be eliminated.’ 

Even if lawmakers manage to pass another bill that addresses Nixon’s concern, the governor has made it no secret that he believes the $620 million tax cut would be “fiscally reckless.” Missouri is already a low-tax state, Nixon says, and a large tax cut would put funding for vital services like education and public safety at risk.

State Budget Director Linda Luebbering argued Tuesday that even the $150 million revenue increases that would have to be reached in order for the cuts to phase in are inadequate. That’s less than the rate of inflation, she said.

A veto override would require a two-thirds vote in both legislative chambers, meaning Republicans would need to vote as a block and pick up the support of at least one House Democrat.

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