Gov. Eric Greitens spent the last week assuring Missourians his plan to cut taxes will result in $800 million in the pockets of Missourians without hurting the state’s budget.
And the political nonprofit his advisers founded last year plans to spend $1 million on television, radio and digital ads to help hammer that idea home.
But Republican leaders in the Missouri Senate aren’t buying it. And it’s becoming clear that tax cuts as Greitens has envisioned them will be a hard sell this year.
“The governor’s tax plan I don’t think is valid. It’s got some holes in it,” said Senate President Pro Tem Ron Richard, a Joplin Republican, later adding: “I think it raises taxes.”
He was joined in his criticism by Sen. Dan Brown, a Rolla Republican who chairs the Senate appropriations committee.
“I think it’s going to be difficult to get done this year,” Brown said.
The heart of Greitens’ plan calls for lawmakers to cut the top individual income tax rate to 5.3 percent from 5.9 percent. Corporations would see their tax rate cut to 4.25 percent from 6.25 percent. The governor’s plan also includes an earned income tax credit for low-income workers that Greitens says would essentially eliminate taxes for 380,000 people.
Those cuts would total around $787 million, said Joel Walters, director of the Missouri Department of Revenue.
To offset some of those costs, the governor’s plan would cut deductions and eliminate certain tax incentives for businesses that Walters said would total about $748 million.
Analysis by the Revenue Department concluded that when the tax rate reduction is coupled with the elimination of certain deductions, Greitens’ plan provides roughly $279 million in net income tax cuts for individuals.
Net taxes on corporations and other businesses would go up an estimated $253 million.
During a speech Tuesday in Riverside, Greitens repeatedly claimed his plan would lower taxes on 97 percent of Missourians.
“In the past, plans like this were focused on the well-connected. They were focused on insiders, people who had an inside track. Our plan, it works for working families,” Greitens told a crowd at the U.S. Farathane plant, which makes plastics for automobiles.
Parker Briden, the governor’s press secretary, told the Associated Press that “there are certain people that are going to have their taxes increased under this, but we’ve worked really hard to make it really good for most businesses and really reward Missouri businesses.”
The plan’s estimated $25 million price tag should be considered “revenue neutral,” meaning it will have no significant impact on the state’s finances, said Joseph Haslag, an economics professor at the University of Missouri and chief economist for the conservative Show-Me Institute.
“For major tax reform efforts like this one, any estimated increase or decrease in revenue projections of less than $50 million is considered revenue neutral by any reputable economist,” Haslag said.
Asked whether he agreed with the governor’s office’s assessment that the plan was revenue neutral, Richard didn’t mince words.
“No,” he said.
Richard Auxier, a researcher with the Washington, D.C.-based Tax Policy Center, said that that one question facing Missouri lawmakers is the goal of Greitens’ tax plan. Any revenue-neutral plan will benefit some taxpayers at the expense of others, he said.
“Is this plan about simplifying Missouri’s taxes? Or is it about shifting taxes off on one group to another … or is the only goal economic growth?” he said. “They should be transparent about what they’re trying to do.”
Auxier, who specializes in state and local tax policy, said it’s unlikely any tax changes made in Jefferson City will have a big effect on the state’s economy.
“Governors always want to frame everything in terms of economic growth … but it’s simply not the case that cutting the tax rate is going to lead to economic growth,” Auxier said. “And Missouri has seen examples of that in surrounding states.”
Kansas cut individual income tax rates across the board in 2012 and eliminated income taxes entirely for most businesses.
Despite the elimination of deductions and increases to the state’s sales tax, Kansas still faced years of budget shortfalls before finally repealing the tax cuts last year.
Auxier said that the only way for a state to make rate cuts work without other changes to the tax code is to make large spending cuts. “It’s coming out of your schools or coming out of your roads,” he said.
Any reduction in state revenue is troubling, Brown said, because lawmakers are already struggling to find places to cut to balance the budget.
“We’re a low tax state. We’re a low service state. So while everyone wants to cut taxes, you have to be careful how much you take out of the budget,” Brown said.
Also drawing concern is the fact that the governor’s plan does not factor in tax cuts passed in 2014, which will reduce the top tax rate by 0.1 percentage point a year, down to 5.5 percent, if state revenues grow enough.
Some Republicans have complained that when the 2014 cuts are considered, the governor’s plan would reduce income taxes only from 5.5 percent to 5.3 percent — although his plan would do so immediately instead of phasing in the cuts.
That would mean the amount of taxes increased would outweigh any tax cuts, said Sen. Rob Schaaf, a St. Joseph Republican and frequent critic of the governor.
“I will stand as long as I can stand against a tax increase,” Schaaf said. “And I want the governor and everyone to know what I define as a tax increase. A tax increase is when we take more money out of the pockets of Missourians than would be in there if we didn’t change anything.”
Sen. Mike Cierpiot, a Lee’s Summit Republican sponsoring the governor’s tax cut plan, said “now is the time to cut taxes for Missouri families and businesses.”
“Ultimately,” he said, “I believe this tax reform proposal allows Missouri families of all socioeconomic backgrounds to have more money to spend on everyday expenses while also creating a more attractive environment for businesses and job creators looking to grow and expand their operations.”