JEFFERSON CITY — Massive tax cuts in neighboring Kansas have put pressure on Missouri lawmakers to respond with new incentives for favored industries and, potentially, a widespread income tax break for businesses and individuals.
Missouri House and Senate leaders said in interviews this week that they plan to pursue tax code changes meant to spur economic development as one of their top priorities when they convene in January. Senate leaders said they hope to pass the legislation before their annual spring break the week of March 17.
"We're sending a message to the rest of the country that you need to take a look at Missouri when you're looking to grow or expand," said Sen. Tom Dempsey, R-St. Charles, who is expected to be elected by colleagues to the Senate's top spot of president pro tem.
Incoming majority leaders Sen. Ron Richard, R-Joplin, and Rep. John Diehl Jr., R-Town and Country, both attributed part of the urgency among Missouri lawmakers to new tax cuts in Kansas.
"Certainly what they've done on the Kansas side puts a lot of pressure on the economic development climate" in western Missouri, Diehl said.
Missouri and Kansas have been waging an intense competition for businesses, committing more than $750 million in tax incentives and bonds in the past five years to get nearly 200 businesses to locate or expand in the Kansas City area alone, according to an Associated Press analysis published in May. Some of those businesses have merely shifted existing jobs a few miles across the border to new taxpayer-subsidized buildings.
Also adding to the sense of urgency in Missouri is the fact that lawmakers have repeatedly failed to pass a proposed overhaul of the state's tax incentive programs. But some of the individuals involved in past stalemates will be gone come January because of term limits. Incoming lawmakers are "extremely motivated" in their desire to influence policy, "and that means getting things done," Dempsey said.
Republicans will have supermajorities in the both the House and Senate for the first time since the Civil War era, allowing them to override vetoes from Democratic Gov. Jay Nixon without the help of minority Democrats. But that may not be necessary, as Nixon and Democratic lawmakers also have made economic development initiatives a priority.
Nixon called lawmakers into an autumn 2011 special session to consider a legislative package that would have scaled back some of Missouri's existing tax credits, including those for developers of low-income housing and historic buildings, while revamping the state's main business incentive program. That package also would have created incentives for certain industries, such as computer data centers and international cargo shippers at the St. Louis airport. The legislation failed, but it could re-emerge as a framework for the 2013 session.
Officials at the Missouri Chamber of Commerce and Industry said they feel encouraged after meeting with Republican leaders.
"I think you're going to see this General Assembly when they convene in January want to move quickly on a number of things — one being an economic development package," said Dan Mehan, president and chief executive officer of the Chamber of Commerce. "They're going to get after it, and they're going to get after it early."
House Speaker Tim Jones, R-Eureka, plans a five-day "listening tour" across the state beginning Dec. 10, and House Republicans expect to meet after that to develop their agenda for the 2013 session. Senate Republicans met this month to outline their policy priorities.
In addition to an overhaul of the state's income tax credits, Dempsey said senators plan to pursue a general income tax cut that could be targeted at corporations, individuals or modeled after a new Kansas tax break for small businesses.
Kansas is reducing its individual income taxes beginning in January, dropping the top tax rate to 4.9 percent from 6.45 percent while also increasing the standard deductions claimed by married couples and heads-of-household. The state also will exempt the owners of 191,000 partnerships, sole proprietorships and other businesses from taxes. Legislative researchers estimate the Kansas tax cuts will add up to $4.5 billion over the next six years, and they project the cuts will create collective budget shortfalls of nearly $2.5 billion during that time.
Missouri legislative leaders want to avoid a similar budget pitfall by offsetting tax cuts with other means of generating money. Dempsey cited measures enhancing Missouri's ability to collect taxes on Internet sales or closing a tax loophole that allows local outlets of large national chain stores to lower their state income taxes by paying royalties to sister companies in other states and then claiming those payments as business expenses.
Diehl said House Republicans haven't delved into specifics, but support the general idea of a tax cut.
"There's a strong preference in our caucus to try to cut tax rates," Diehl said. "When you cut tax crates, you create more economic activity."