Missouri Senate passes tax cut bill

Democratic lawmakers, severely outnumbered, filibustered for hours on end this week to block a bill aimed at cutting Missouri taxes to keep up with Kansas in an ongoing economic border war.

The legislation would end up costing roughly $700 million and mark the first time in 90 years Missouri cut its income tax rates.

Meanwhile, Republicans stewed in frustration.

After all, they entered the session with such an overwhelming majority that they could not only bull past the Democrats in the legislature, but they could pass bills knowing they had enough votes to override Democratic Gov. Jay Nixon’s vetoes.

Still, the Democrats filibustered on — until the Republican leadership reminded them who’s in charge.

“Don’t work with me all year long and then two weeks out say that the majority party isn’t going to get one of its key priorities,” said Senate President Pro Tem Tom Dempsey, a St. Charles Republican.

Remember that voter ID bill? The one Democrats believe will waylay some of their most ardent supporters from casting ballots? Let us pass these tax cuts, the Republicans signaled, or brace for polling places where only those with their pictures on identification cards can vote.

“I don’t feel like (voter ID) is something we need to do this year,” Dempsey said, “as long as we are working together and I can see there is an earnest effort to work through our differences.”

To add to the equation, Dempsey at one point hinted he’d outlaw a local earnings tax that the state’s big cities depend on to keep them fiscally afloat.

Democrats didn’t have much choice. Early Wednesday morning they abandoned the filibuster. The Senate passed the tax cut bill 24-9 Wednesday evening.

“We still think this is bad policy,” said Senate Minority Leader Jolie Justus, a Kansas City Democrat. “But the message we received was that if we don’t allow this to come up for a vote, many of the priorities we’ve been trying to defend over the last few months would be forced to a vote.”

At the heart of the tussle is whether Missouri needs to respond to sweeping tax cuts enacted last year in Kansas. Republicans have made tax cuts a legislative priority, arguing that if Missouri does nothing it will watch businesses flee west across the state line.

The plan they’ve come up with gradually reduces individual and corporate income taxes over 10 years, although those cuts would not go into effect unless state tax collections grow by at least $100 million each year. The bill also calls for a 50 percent tax deduction, phased in over five years, on business income.

When fully implemented in 2024, legislative researchers project the changes would reduce state revenues by $692 million annually. Unlike previous versions, the legislation does not include a sales tax hike to offset potential budget shortfalls.

“I believe when we cut taxes, those people who now have those dollars will spend them and will grow the economy,” said Sen. Will Kraus, a Lee’s Summit Republican who has championed the tax cut plan this year. “When you cut taxes on businesses, they will grow and create more jobs.”

Democrats argued that Missouri is already a low-tax state. Cutting taxes further while underfunding vital services like education, public safety and infrastructure would be irresponsible, they said.

“I want us to have the lowest taxes possible,” said Sen. Paul LeVota, an Independence Democrat. “But we need to be able to pay for the things the state government has to do, and this bill puts that in jeopardy.”

Critics of the tax cut plan point to an estimate issued last month by Kansas’ consensus revenue group that predicted that state’s cuts will create a $745 million budget shortfall next fiscal year.

“I’m not sure why we want to follow Kansas over the cliff,” LeVota said.

Dempsey bristled at the comparison to Kansas. The Missouri plan is a moderate approach, he said, pointing out that the tax cuts are much smaller and are phased in over 10 years. Additionally, the cuts are only enacted if state revenue grows.

“It’s not the same as the Kansas tax cut plan, so don’t say it is,” Dempsey said.

Regardless, supporters made it a point to tout a recent report on Kansas revenue of their own. The state’s Revenue Department announced last week that total tax receipts for April jumped nearly $42 million from April 2012.

Before raising the specter of the voter ID bill, Dempsey drafted an amendment to the tax cut bill that would prohibit any city from imposing an earnings tax.

In Kansas City, the earnings tax raises $200 million annually, or about 40 percent of the city’s general fund revenue. In 2011, residents voted to keep the earnings tax by a 3-to-1 ratio.

Justus said the amendment didn’t affect the Democrats’ decision to let the bill pass, and Dempsey never formally offered it to be included.

With one more vote in the House, which is expected to quickly approve the measure, it would go to Nixon. He threatened to veto a previous version of the bill over the inclusion of a sales tax increase. With that provision removed, it’s unclear what he plans to do, although Democrats continue to publicly press for him to reject the bill.