Forty-four of the 50 states in the nation don't allow it. Missouri does, and in 2011, the practice denied state agencies nearly $400 million that Missourians desperately needed for health care, education, infrastructure and other essential services in every part of the state.
Only Missouri, Alabama, Louisiana, Iowa, Montana and Oregon treat federal income tax as a deductible expense for state income tax purposes, according to a report by the Institute on Taxation and Economic Policy, a 32-year-old non-partisan research and analysis organization based in Washington, D.C. It is a costly tax code luxury that produces no noticeable public benefit and is ripe for reexamination by the Missouri legislature.
The state continues to struggle with the after-effects of the Great Recession of 2007-08, which already has forced deep cuts in crucial state services all over the country. Missouri's 2012-13 fiscal year, which starts July 1, probably will be worse because special federal funds that eased financial pressures on health care and education services for the last two years have run out.
Missouri's budget is projected to fall short of the current year's level by $500 million (according to the governor's office) to $800 million (according to the Missouri Budget Project). Recovering $400 million would spare Missouri's 6 million residents a lot of hardship.
Yet Missouri's Republican-dominated House seems so intent on embarrassing itself with meaningless protest votes on federal health care legislation and slipping millions of dollars of favors into bills for pals and contributors that it can't be bothered with exploring the possibility of helping constituents with an additional $400 million.
Rep. Jeanette Mott Oxford, D-St. Louis, and 30 co-sponsors (all Democrats) introduced legislation to eliminate the deductibility of federal income taxes. It was referred to a legislative committee, but no hearings were scheduled.
Last week on the House floor, Oxford tried to attach her bill, HB 1617, as an amendment to three other bills under consideration, which at least would keep it alive. Her colleagues refused. She told us that she intends to keep trying.
Even if it passed the House, Oxford's legislation still would have to get through the state Senate and be signed by Gov. Jay Nixon to become law. Then it would have to be submitted to the voters for approval under Missouri's Hancock Amendment because eliminating the deduction would leave more income subject to state taxation and increase revenue — which, of course, is the reason for doing it.
GOP legislators would argue that HB 1617 would result in a tax increase. And a party that won't increase the nation's lowest state tax on cigarettes (to the detriment of individuals' health and the state's Medicaid budget) or collect taxes on online sales by out-of-state businesses (to the detriment of Missouri retailers) is not going to mess with any kind of tax increase whatsoever.
Oxford knows that better than most people. But her idea is worth a hearing. Forty-four other states, including some every bit as conservative as Missouri, have found it to be a good idea. Sooner or later Missouri will, too. But there will be a lot of needless suffering until that day comes.
Copyright St. Louis Post-Dispatch. Reprinted with permission.