Government & Politics

Lawmakers note cost estimate mistake worth up to $65m, pass fixed corporate tax cut

The Missouri Capitol in Jefferson City.
The Missouri Capitol in Jefferson City.

Missouri senators were faced with a tough choice late Thursday night: rush through a corporate tax cut in the waning hours of the legislative session or watch the House pass a deeper cut.

"You can hear, I'm sure, the frustration in my voice," said. Sen. Jill Schupp, D-St. Louis County. "I don't know how we move forward. I don't know exactly where we land, and things could have been different."

Senators voted 23-9 in favor of a corporate tax cut seemingly to avoid an even worse one. Pressure appeared to mount as senators held the floor and fretted over the cut, afraid if they didn't pass it the House would pass the bill they previously shelved after members discovered the $60 million error.

The House passed the smaller cut 92-44 Thursday afternoon after realizing the fiscal note's error and accusing the Missouri Department of Revenue of concealing the mistake for more than a week. They need to pass it once more to send it to Gov. Eric Greitens' desk.

"Not only here we are at the 11th hour, but we didn't need to be in this place," Schupp said. "Two weeks ago we could have dealt with this. I just feel like we've been left in a position that is untenable."

The debate came in Missouri Republicans' long-running effort to pass a tax cut package before the session ends Friday at 6 p.m. Both chambers passed an individual income tax cut that now heads to Greitens' desk. But the flawed fiscal note on the corporate cut created a scramble with less than 24 hours left.

Rep. Scott Fitzpatrick, R-Shell Knob, amended the bill to avoid the budget hit discovered Thursday. He acknowledged the House leaned on senators to pass that version.

"I think the speaker was telling the Senate, 'You guys need to pass this. Otherwise — we're going to cut corporate taxes one way or the other, so you guys need to pass this one if you don't want us to pass the one that's going to cost the state a bunch of money,'" Fitzpatrick said.

Sen. Andrew Koenig, R-St. Louis County, acknowledged the pressure on the Senate floor.

"I was told by both the speaker of the house — the future speaker of the house, the current one — and then also the floor leader, that they will move (Senate Bill) 674 if we fail to act tonight," Koenig said.

Koenig sponsored in the Senate the bill with the flawed analysis — Senate Bill 674 — and the smaller corporate tax cut Fitzpatrick amended in the House.

The analysis originally claimed the larger corporate cut would bring another $10 million into the state. The new analysis says the bill would knock a hole in the budget worth anywhere from $28.5 million to $52.4 million, a swing worth between just under $40 million and just over $60 million.

The mistake infuriated some House members and gave fellow others enough pause to put the brakes on the bill, which would have cut corporate tax rates from 6.25 percent to 3.5 percent starting in January. Fitzpatrick's amendment delayed implementation until January 2020 because lawmakers have already budgeted through July 2019. His version cut the corporate rate to 3.9 percent. House and Senate lawmakers compromised at 4 percent.

In both chambers, lawmakers accused the department of knowing about the mistake and concealing it.

Rep. Deb Lavender, D-Kirkwood, accused Koenig of knowing about the error, too.

Koenig said that was incorrect. He said he became aware sometime last week that the fiscal note was going to change and was not sure when other lawmakers found out.

Fitzpatrick said he became aware Wednesday morning only because he called budget and planning officials into his office with questions about tax bills that would affect the budget.

"Had I not asked about it, we'd have probably passed that bill yesterday," Fitzpatrick said Thursday.

Missouri Department of Revenue Director Joel Walters said in a statement that the department discovered the error in early May after a House hearing on the bill. By that time, the House had its own version of the bill, which was recalculated correctly. Lawmakers were never notified, Walters said, because the department thought the old Senate version of the bill had become irrelevant.

"The Department of Revenue strives for a seamless fiscal note process and we routinely meet, if not exceed, the high standards demanded of us, in spite of the inherent and extreme complexity of tax policy," Walters said.

Rep. Kip Kendrick, R-Columbia, called the Missouri Department of Revenue "disrespectful" and accused the agency of knowing about the error and concealing it. The error itself, he said, was not the issue.

"The fact is, they knew about this, and they sat on it. They sat on this information. They did not make this information known to anyone in this body — anyone," Kendrick said.

Kendrick said "at best" the department's actions amounted to "gross negligence."

"I think people should lose their jobs," Kendrick said. "I think people should lose their jobs over this."

Fitzpatrick said he offered his amendment to avoid blowing a hole in the budget lawmakers worked for months to pass.

"I have a problem with passing a bill that's going to unbalance the budget we just passed," Fitzpatrick said.

Koenig said the department couldn't come up with exact numbers for some of the effects of the bill.

"So the reality is it's a little bit of a guess. If we made no changes, we aren't going to know how much corporate revenue is going to be collected next year because government and people can't predict what the market's going to do," Koenig said.

Jeremy LaFaver, a spokesman for the left-leaning Missouri Budget Project and a former Democratic House member, said the group testified that the fiscal note was incorrect long before the department acknowledged it. The group, he said, was more supportive of other tax proposals, like one offered by House Speaker Pro Tem Elijah Haahr, R-Springfield, that passed Thursday evening. He said it had been better vetted. The organization would also like to see an earned income tax credit pass, he said.

But LaFaver cautioned against Koenig's bill because of the incorrect and changing analysis.

"We're not really sure if this analysis is correct because nobody's really vetted that," LaFaver said. "That's a dangerous way to pass tax policy in these last couple hours."

Koenig said he was fine with the alternative version passed by the House. Cutting corporate taxes, he said would make Missouri more competitive.

"The reality is corporate taxes are destructive towards economic growth," Koenig said. "What this bill will do is it'll give us the second-lowest corporate tax in the nation if you exclude the five states that don't have a corporate tax, that have a gross receipts tax."

Haahr's bill, which was narrowed significantly in the Senate, passed the House again Thursday night. Lawmakers voted 101-40 to send it to Greitens' desk.