Missouri Gov. Jay Nixon contends that an income tax-cut bill sent to him by the General Assembly could blow a massive hole in the state’s budget as early as this year. He has acted on that premise by withholding $400 million from the 2014 budget — a move that will affect schools, colleges, doctors and state employees.
Furious Republican legislative leaders are describing the governor’s high-stakes move as a political ploy to discourage lawmakers from overriding his veto of the income tax bill when the legislature convenes in September.
But if the bill is really as flawed as Nixon says it is — and he makes a convincing case — withholding the money was necessary and inevitable.
House Bill 253 is a sloppy piece of legislation crafted by Republicans who mistakenly think the way to lead Missouri to prosperity is to copy Kansas by cutting income taxes.
The provision that prompted Nixon to hold back funds calls for an immediate drop of a half of a percent in the maximum state income tax rate if the U.S. Congress passes a law making it easier for states to collect sales taxes on Internet purchases.
That means revenues would decrease before the state begins receiving extra sales tax funds. As Nixon notes, estimates of how much the state would gain from the new source of sales taxes appear wildly optimistic.
Even worse, the bill is drafted to apply retroactively to earlier tax years. In Missouri, taxpayers are entitled to claim refunds for three years.
If every high-income taxpayer demanded the full refund, Nixon’s budget office has calculated the damage would be as much as $1.2 billion.
That would more than wipe out a $300 million surplus that is expected to be carried over from the budget year that just ended.
The $1.2 billion estimate is a worst-case scenario, of course. But when it comes to protecting a state’s fiscal integrity, worst-case projections are more useful than rosy scenarios.
Nixon’s budget withholding is a grim picture of what lies ahead for Missouri if the legislature slashes income taxes. Already underfunded schools will receive even less state support.
Funding for colleges and universities will be cut, likely resulting in higher tuition. Doctors who treat Medicaid patients will receive less state reimbursement. State employees will face layoffs and more years without pay increases.
The alternative is for the legislature to allow the governor’s veto to stand. They need to get to work on an economic development plan that capitalizes on assets such as good schools and universities instead of decimating them.
That’s the message Missourians should convey to state lawmakers in advance of the veto session two months away.
Copyright Kansas City Star. Reprinted with permission.