With Eye to Kansas ‘Border War’, Missouri House Passes Tax Reform Bill, But Without Veto-Proof Numbers
April 25, 2013

Missouri capitol building(AP) — Envious of income tax cuts in neighboring states, Missouri’s Republican-led House voted Wednesday to slice income taxes for individuals and businesses while imposing a higher sales tax that would fund schools and roads.
The legislation would mark the most significant change to Missouri’s tax code in at least a couple of decades. But Democratic Gov. Jay Nixon has voiced opposition to similar versions, citing the potential to shift the tax burden away from corporations and the affluent onto those who can least afford the higher sales tax.
The House passed the legislation by a 90-68 vote, though some members of the Republican supermajority defected to join Democrats in opposition.
19 Republicans voted against the legislation, leaving it far shy of the 109 votes that would be needed to override a potential gubernatorial veto.
The bill now must go back to the Senate, because the House made changes to a version passed last month in the other chamber.
Republican supporters in both chambers have touted the tax changes as an important counter-move in an ongoing battle for businesses among Missouri and its neighboring states such as Kansas, Oklahoma and Tennessee. Kansas passed an income tax cut last year.
Missouri’s GOP lawmakers asserted that the state hasn’t cut its individual income tax rates since 1921.
“We have to do something, or our state is going to lose out,” said Rep. Andrew Koenig, R-St. Louis County, who handled the bill.
Legislative researchers project the House plan would eventually reduce state revenues by $438 million annually. The Missouri Budget Project, a St. Louis-based nonprofit that has run ads against the proposed tax changes, estimates that the bill could eventually reduce state revenues by almost $1 billion annually.
Democrats suggested the proposed tax changes would bust the state’s budget.
“We’re being really irresponsible here,” said Rep. Jon Carpenter, D-Kansas City.
Under the House plan, the top individual income tax rate of 6 percent would be cut by two-thirds of a percentage point over five years, so long as state revenues continue to rise by $100 million annually. The corporate income tax would be gradually reduced by three-quarters of a percentage point. And a new 50 percent deduction would be phased in for business income reported on individual income tax returns.
To partially offset that lost revenue, the legislation would gradually increase the state sales tax by three-fifths of a cent, with most of those revenues earmarked to schools and a smaller portion dedicated to state roads and construction of a new mental hospital. Like the income tax cuts, the sales tax increase would take effect only if state revenues continue to rise by at least $100 million annually.
The various tax changes would start in 2014 and be fully implemented in 2018.

Kansas Budget Must Wait for Wrap- Up Session
April 9, 2013

(AP)–Kansas legislators left for their monthlong break without finalizing the state’s $14 billion budget, with many spending cuts favored by Republicans still pending and more possible changes to the tax code.

Lawmakers spent more than a week negotiating the budget before adjourning late Friday. Although they settled several issues, including changes in abortion and gun regulations, disputes over higher education and income taxes remain unresolved.

The Kansas Senate is recommending a 4 percent cut in funding for the state’s public universities and community colleges. The House favors a 2 percent cut while capping salaries at state agencies to generate about $36 million to make up the difference.

On Monday, House Appropriations Committee Chairman Marc Rhoades said state agencies have been spending less than what they were authorized on salaries in recent years, choosing to use the savings for other operations and projects. He acknowledged that would amount to a cut to state agencies, which the Senate has been hesitant to embrace, but he said he was hopeful for a compromise.

“I think we’re really close on that,” the Newton Republican said. “Once you take care of those pieces, we have about 98 percent of (the budget) done.”

Lawmakers also are fighting about how to further cut Kansas income taxes, though a revenue report due out before they return to work on May 8 is expected to help settle the debate. The report, compiled by nonpartisan researchers and economists, will look at current economic conditions and calculate how much Kansas can anticipate collecting in taxes through June 30, 2014.

Brownback Says “Budget Reality” Will Block Push to Drop State Sales Tax
March 29, 2013

(AP)–Gov. Sam Brownback said Thursday that Kansas’ “budget reality” will push lawmakers toward approving his proposal to cancel a scheduled decrease in the state sales tax.

The Republican governor said he will consider “anybody’s proposal” as the GOP-dominated House and Senate negotiate the final version of tax legislation. But Brownback also said legislators have limited options for stabilizing the budget while seeking further cuts in individual income taxes.

Brownback and most Republican legislators want to follow up on massive income tax cuts enacted last year with another round of reductions in personal income tax rates. Last year’s cuts created a budget shortfall, and Brownback has promised to protect important programs, such as education funding and social services.

Meanwhile, the state’s 6.3 percent sales tax is scheduled by law to drop to 5.7 percent in July, the result of a budget-balancing agreement in 2010 that temporarily boosted the tax to its current level. Legislators in both parties don’t want to break the pledge, but some are willing to do it with the promise of future income tax cuts.

“There’s just the budget reality,” Brownback said. “I think it’s coming across to people that you’ve got to get your resource package somewhere. The budget doesn’t work without the tax piece of it.”

The Senate approved tax legislation embracing Brownback’s proposals to keep the sales tax at its current rate while guaranteeing cuts in individual income tax rates over the next four years. The top rate would drop for 2017 to 3.5 percent from 4.9 percent.

The House passed a tax plan that allows the sales tax to drop and cuts income tax rates less aggressively. The House plan would decrease personal income tax rates each year if overall state revenues grew more than 2 percent. The top rate for 2017 would be 4.88 percent, according to legislative researchers.

Mo. Senate Moves to Close Renters Tax Break Used by Many Seniors
March 28, 2013

(AP) — More than 100,000 lower-income seniors and disabled residents who live in rented homes could lose an annual state tax break as a result of legislation given first-round approval Wednesday by the Missouri Senate.
The bill takes aim at an income tax credit created in 1973 that was intended to offset a portion of the local property taxes paid by low-income seniors. Over the years, the politically popular tax break was expanded to disabled residents and enlarged to provide a greater benefit to its recipients.
The Senate bill would abolish the tax credit for renters while leaving it in place for those who own their homes – a change recommended by a tax credit review commission appointed by Gov. Jay Nixon. It would redirect the $57 million of savings from the abolished tax break to fund existing state health, mental health and social services that may benefit seniors and the disabled.
Amy Bllouin of the Missouri Budget Project blasted the move.
She called it part of a “devastating tend of tax breaks for big corporations and the very wealthiest at the expense of low-income and working Missourians.”
The legislation needs another Senate vote to go to the House.
Nixon’s commission released reports both in 2010 and 2012 asserting that there is not enough evidence that rental costs are influenced by landlords’ property taxes. It also highlighted program discrepancies that deny the tax break to tenants renting from nonprofit organizations while granting it to those whose landlords are looking to make a profit.
Senate President Pro Tem Tom Dempsey described the current program as arbitrary.
“Depending on where you live, sometimes you qualify and sometimes you don’t,” said Dempsey, R-St. Charles, who is sponsoring the bill.

Missouri Senate Moves Tax Reform Bill Ahead to Respond to Kansas & Border War
March 7, 2013

JEFFERSON CITY, Mo. (AP) — Attempting to keep pace with tax-cutting Kansas, Missouri senators endorsed a plan Wednesday to shave hundreds of millions of dollars off the income tax bills of businesses and residents. But the tradeoff could be higher taxes for shopping at stores and online.

The legislation given preliminary approval by the Republican-led Senate could mark Missouri’s most significant overhaul of its tax policies in a couple of decades.

Republicans expressed hope that it would spur an economic revival – or at least keep businesses and residents from being lured across the state’s western border by the siren call of lower taxes. Yet some Democrats called it “irresponsible,” noting that Kansas now faces a budget gap as a result of sweeping tax cuts that kicked in this year.

The Missouri legislation, which needs another vote to go to the House, would gradually reduce the state’s income tax rate by three-quarters of a percentage point over five years while gradually increasing the state sales tax by one-half of a percentage point over that same period.

In addition to an overall income tax cut for individuals and businesses, the new plan would roughly double Missouri’s current income tax deduction for people with adjusted gross incomes of less than $20,000 annually. The legislation also attempts to boost tax collections by tightening the requirements for when retailers must collect Missouri taxes and by joining a multistate compact that collects taxes from online sales.

When the income tax cuts are partially offset by the sales tax increases, the net effect could be a roughly $450 million reduction in state tax revenues, according to estimates from sponsoring Sen. Will Kraus, R-Lee’s Summit.

The nonprofit Missouri Budget Project, which analyzes financial issues with an emphasis on their effect on the poor, estimated that the Senate legislation could reduce tax revenues by $700 million when fully phased in.

Kraus emphasized that his plan doesn’t go as far as the one passed last year in Kansas, which cut income taxes without raising its sales taxes and now faces a projected budget shortfall of around $200 million for the fiscal year beginning in July. But he said his bill could make Missouri more competitive with its neighbor.

“I’m trying to stop the bleeding. I’m trying to stop the businesses from fleeing into Kansas,” Kraus said.

He proclaimed the plan “fiscally sound,” predicting it would “create an economic engine in our state” that would generate enough new tax revenues to make up for the losses.

But some Democrats warned that the tax cuts could wreak havoc on Missouri’s budget, making it even more difficult for the state to provide money to its already underfunded public schools. Senate Minority Leader Jolie Justus, D-Kansas City, was among those who called the plan “irresponsible.”

“What good are all these businesses going to be if we have a bunch of uneducated, unhealthy citizens?” Justus said during Senate debate.

Sen. Jason Holsman, D-Kansas City, suggested Missouri should wait to see the effect of the Kansas tax cuts.

“It may turn out that Kansas decides it wasn’t such a good fiscal policy to decimate their revenue,” Holsman said.

The recently enacted Kansas law reduced individual income taxes, increased standard deductions and exempted the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes. As a result of the ensuing budget gap, Kansas Gov. Sam Brownback has proposed to generate state revenues by eliminating income tax deductions for the mortgage interest and property taxes paid by homeowners. He also wants to cancel the scheduled expiration of a temporary sales tax increase.

If Missouri cuts its income taxes and revenues take a nose dive, lawmakers wanting to reverse course would have to seek voter approval to raise the taxes because of provisions in the state constitution, Holsman said.

Kraus, who is chairman of the Senate Ways and Means Committee, had brought a plan to the Senate floor last week that included income tax reductions only for businesses and for residents with income above $7,000 annually. He said he added the additional income tax deduction for lower-income residents at the request of Sen. Maria Chappelle-Nadal, D-St. Louis. He added the sales tax provisions in an attempt to bring down the amount of lost state revenues.

During debate Wednesday, the Senate also accepted an amendment by Sen. Scott Sifton, D-St. Louis, that pared back Kraus’ original plan to cut income taxes by a full percentage point and added an additional tax break that Sifton said would primarily benefit small businesses. Kraus supported the amendment.