Missouri Republicans fired the latest shot in the state’s economic border war with Kansas on Tuesday, forcing a $620 million tax cut into law over the objections of Gov. Jay Nixon.
In overriding the governor’s veto, Republicans snagged their top priority for the year and handed the Democratic governor the most high-profile defeat of his second term.
But the debate over whether the tax reductions will lead to economic prosperity or budgetary ruin will likely rage for years.
It could also put other legislative priorities in jeopardy this year, including a sales tax increase to fund road repairs and a long-sought fix to a law allowing students in failing schools to transfer to another district.
To supporters, the tax cuts meet a need for Missouri to keep pace with its neighbors and grow its economy.
“This will bring more growth, more opportunity and more prosperity for more Missourians,” said House Speaker Tim Jones, a Eureka Republican.
Detractors said cutting taxes by $620 million could jeopardize funding for essential state services while providing a much larger benefit to the rich than to the poor.
“Taking a massive bite out of the state budget to give tax cuts to the wealthy ensures full funding of education never will happen,” said House Minority Leader Jacob Hummel, a St. Louis Democrat.
Missouri’s plan is far less expansive and immediate than the tax cuts enacted in Kansas over the last two years.
The Missouri legislation would gradually cut the top individual income tax rate to 5.5 percent from the current 6 percent and phase in a 25 percent deduction for business income reported on personal tax returns.
Those tax cuts wouldn’t kick in until 2017. The soonest they could fully take effect would be 2022. Each incremental cut would happen only if state revenues grew at least $150 million over the high mark of the previous three years.
According to the Missouri Department of Revenue, a family of four earning $44,000 annually will get a tax cut of about $32 when the law is fully implemented.
A family of four with a business owner making $100,000 annually could get a tax cut of more than $1,600.
Missouri’s cuts pale in comparison to those enacted in Kansas, where lawmakers sharply lowered the state’s top tax rate and fully exempted certain categories of businesses from taxes.
“This is a reasonable bill that has protections in it,” said Sen. Will Kraus, a Lee’s Summit Republican who has championed the tax cut bill the last two years. “This is nothing like what they did in Kansas.”
Another difference with Kansas, however, is that Missouri’s constitution prohibits lawmakers from raising taxes down the road if revenues fall short unless they put the increase on the ballot for a public vote.
“When it becomes clear that these tax cuts aren’t the panacea promised by its supporters, legislators can’t turn back,” said Brent Ghan of the Coalition for Missouri’s Future, a group organized to oppose the tax cut legislation.
The $150 million revenue triggers cited by supporters as a safeguard against revenue shortfalls are just a smokescreen, said Amy Blouin, executive director of the liberal Missouri Budget Project.
State revenues need to grow by $250 million each year just to keep up with current services, Blouin said. She said that had the tax cuts existed during the last recession, they still would have gone into effect.
“The trigger is meaningless,” said Rep. Jon Carpenter, a Kansas City Democrat.
Critics pointed to a decision last week by Moody’s Investors Service to downgrade Kansas’ credit rating, citing its sluggish economic recovery. It said the income tax cuts put pressure on the budget and created risk for the state’s financial future.
Republicans dismissed any comparison to Kansas, saying Missouri’s plan was more measured and will give Missouri businesses the opportunity to reinvest into the economy.
“Missouri’s economy is not growing at a fast enough rate,” said Senate Majority Leader Ron Richard, a Joplin Republican. “This bill will increase our ability to bring more quality jobs to the state and will send a strong message that Missouri is open for business.”
The tax cut veto override vote was 109-46 in the House on Tuesday, with all Republicans and one Democrat providing the two-thirds vote needed to override; the previous day, the Senate had voted 23-8 for the override.
Some Democrats complained that the income tax override meant they may no longer be able to help Republicans pass other legislative priorities that need bipartisan coalitions to accomplish.
The House passed a sales tax increase to fund repairs to the state’s crumbling transportation infrastructure — including a rebuild of Interstate 70 from nearly Illinois to Kansas.
But 38 of the 108 Republicans in the House voted against the measure, which would represent the largest tax increase in the state’s history.
Now the House needs to pass the increase one more time, since changes were made in the Senate, and once again Democrats will likely be needed for it to pass.
“I don’t know if I can support it again,” said Hummel, who along with 33 other Democrats voted for the sales tax increase last month. “That bill’s chances are in jeopardy.”
Hummel said many of his fellow Democrats think it’s inconsistent to tell voters Missouri doesn’t have enough money to repair its roads and then slice state revenues with a tax cut.
Rep. Jeremy LaFaver, a Kansas City Democrat, said he’s even leaning toward opposing a student transfer bill he supported when it passed the House last month.
The transfer bill includes a provision that would allow some local tax dollars to be used to pay for students in the Kansas City and St. Louis areas to attend non-religious private schools.
Several Democrats question if they can support public funds going to private schools when they fear the tax cut will result in education funding shortfalls in the future.