Missouri tax cut backers, foes both cite Kansas cuts

Thursday, January 16, 2014 | 4:37 p.m. CST; updated 10:48 p.m. CST, Thursday, January 16, 2014

JEFFERSON CITY — Kansas is again being held forth as the prime example in Missouri's renewed debate over whether to cut income taxes.

But rather than being touted primarily by tax-cut proponents, Kansas also was cited Thursday by tax-cut opponents concerned about the potential for falling state revenues and inadequate school funding.

A Republican-led Senate committee heard testimony on a trio of proposals — one cutting taxes only on business income, another reducing the individual income tax rate and a third phasing in tax cuts for both businesses and individuals.

The panel is expected advance some combination of those proposals in coming weeks as majority-party Republican try again to enact an income tax cut after Democratic Gov. Jay Nixon vetoed last year's legislation.

"We are here for the sequel. Hopefully, it's better than the original in the outcome," Sen. Eric Schmitt, a Republican from suburban St. Louis who is sponsoring two of the bills, said as the Senate Ways and Means Committee began its deliberations.

As they did last year, lobbyists for business groups again pointed to tax cuts in Kansas and other neighboring states. Over the past two years, Kansas has exempted the owners of 191,000 businesses from income taxes and sliced tax rates for individuals. Six of Missouri's eight neighboring states enacted some sort of tax cut last year.

"We are surrounded by states that are beckoning our businesses and citizens to come to them," said Woody Cozad, a lobbyist for the Gate Way Group, which represents various business interests and mega-political-donor Rex Sinquefield.

Missouri lawmakers are particularly concerned that businesses in the Kansas City area will relocate across the state line to take advantage of the new tax savings.

But opponents of an income tax cut said Missouri already is ahead of Kansas in economic indicators and could jeopardize funding for state services if it followed Kansas' example.

Kansas revised its financial outlook downward in November. It forecasts that its 2014 general revenues will fall 7.6 percent short of the previous year and 8.7 percent shy of what the state collected in 2012. The falling revenues have made it more difficult for Kansas to recover from previous education funding cuts that have left basic per pupil aid 13 percent lower than its peak in 2008.

Although Missouri hasn't cut public school funding, its basic school aid is about $600 million short of what's called for under state law.

If Missouri income taxes are cut, it "may be utterly impossible" to catch up on school funding, said Otto Fajen, a lobbyist for the Missouri chapter of the National Education Association.

Legislative researchers project that a gradual 50 percent tax deduction for business income, which one of the bills proposes, could eventually cost the state $148 million annually. But the Missouri Budget Project, a St. Louis-based nonprofit that analyzes fiscal issues with an eye on the poor, puts the potential cost at more than $500 million.

The costs could be higher for other proposals.

Schmitt's bill to gradually reduce the top individual income tax rate from 6 percent to 4 percent is projected to cost anywhere from $384 million to more than $1.5 billion when fully implemented.

A bill by Sen. Will Kraus, R-Lee's Summit, would reduce the individual income tax rate to 5 percent, create a 50 percent deduction for business income, expand deductions for low-income individuals and exempt corporation's first $25,000 of income from taxes. It's projected by legislative researchers to cost $945 million annually when fully implemented; the Missouri Budget Project puts its eventual cost at $1.8 billion.

Tax-cut supporters contend the revenue loss could be made up at least partly by expanded payroll and sales taxes generated by businesses that use their tax savings to hire additional employees and expand operations.

But Amy Blouin, executive director of the Missouri Budget Project, cast doubt on such assertions. She estimated Missouri businesses would have to create about 250,000 jobs to offset a $500 million tax cut.

"We would have to practically import people from other states to create that level of growth," Blouin said.

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