Missouri legislators face stark choices as they decide how to fund K-12 classrooms, higher education, foster care, public health and other critical services. Our state’s budget is, after all, a reflection of Missourians’ priorities. But legislators have spent much time debating false choices and pitting worthy investments against one another to balance the budget, while never acknowledging that faulty tax policy is the true problem. Now is the time for our elected officials to build a stronger Missouri by revising tax policies that undermine our transportation network, education and quality of life.
Corporate income tax collections nosedived last year, creating a budget hole that bleeds into next year and beyond. And come January, a package of tax cuts passed in 2014 will go into effect, making it even more difficult to pay for the things that build a brighter future for our state.
This year, lawmakers have debated whether to cut a modest property tax credit that helps seniors and people with disabilities stay in their homes. This cut was offered as an alternative to cutting in-home health services, which also help people remain independent and avoid more costly nursing home care. Lawmakers will likely have to dig even deeper for cuts next year.
But hardworking Missouri families who will bear the brunt of these cuts did not create the state’s budget problems, nor did spending. Despite myths to the contrary, relative to the economy, our state has fewer resources to invest in the needs of Missourians than at almost any time in the last 35 years.
Our state’s tax policies that favor special interests, essentially choosing economic winners and losers, created our budget shortfalls. Legislators have a duty to address the core problem so that we can invest in our greatest asset: our people.
Fortunately, there are many common-sense tax policies that would enable our great state to protect struggling Missourians and put us on a more fiscally responsible path, such as:
▪ Revising corporate tax changes: Lawmakers recently changed how companies that do business in multiple states calculate their taxes. The change, which largely benefits out-of-state companies, cost much more than expected. In fact, corporate tax revenue has declined 60 percent since fiscal 2015, driving much of the current budget problem. Moreover, Missouri allows corporations to choose among three formulas to determine how much tax they owe. Using just one formula would simplify our tax system and make sure companies are paying their share.
▪ Repealing the business income deduction set to go into effect in January: The business income deduction is just one of a package of tax cuts passed in 2014. Similar to one that has created ongoing havoc and budget shortfalls in Kansas, it allows some business owners to avoid taxes based simply on how they structure their businesses. The provision encourages tax avoidance but does nothing to stimulate economic growth. Eliminating it would put our state on more sound economic footing so we don’t find ourselves in worse fiscal shape next year.
▪ Reducing outdated incentives: Missouri allows retailers to keep a portion of sales and use taxes they collect from customers if they remit those taxes in a timely manner. The discount was established when companies had to manually do the work, a burdensome process. But automation negates the original purpose of this “timely filing discount.” Simply reducing this discount would allow our state to make much-needed investments that would strengthen our quality of life and economic competitiveness.
If left unchanged, Missouri’s budget struggles will get worse. Instead of pitting the needs of one group of Missourians against another, now is the time for legislators to be true leaders and revise faulty tax policies so that our state can invest in our greatest asset: our people.
Amy Blouin is executive director of the Missouri Budget Project, a public policy analysis organization based in St. Louis.