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Analysis: Missouri GOP senators divided on tax cut plan

Sunday, March 23, 2014 | 4:27 p.m. CDT

JEFFERSON CITY — Republicans in charge of Missouri's legislature remain committed to cutting income taxes this year. But at the midpoint of their session, senators are still divided about how to do that.

There is no consensus about how large of a tax cut to pursue, exactly whose taxes to cut and whether a tax cut should be contingent on other factors.

Senators have debated several different approaches without taking a vote and are expected to resume the discussion sometime after they return Monday from their annual spring break.

The internal GOP disagreement basically centers on whether to appease or put the squeeze on Democratic Gov. Jay Nixon, who vetoed an income tax cut last year.

Some Republicans want to try to compromise and pass a tax cut that Nixon might sign. The leading advocate for that approach is Sen. Will Kraus, the chairman of the Senate Ways and Means Committee.

"A real tax cut is one that becomes law and takes effect," said Kraus, of Lee's Summit.

Other Republicans prefer to disregard the governor's objections and pass a tax cut that might require a veto override to enact. The leading voice for that approach has been Sen. Eric Schmitt, the chairman of the Senate Jobs, Economic Development and Local Government Committee.

"I don't know why we wouldn't move forward with something we believe in and let the chips fall where they may," said Schmitt, of Glendale.

The disagreement over strategy comes in an election year during which Republicans are seeking to build upon some of their largest legislative majorities in state history while Democrats are mounting a more concerted effort to start winning back some of the legislative seats they have lost over the past decade.

Last year, Republicans passed a wide-ranging bill that would have gradually cut state income tax rates for individuals and corporations, expanded a tax break for low-income individuals and phased in a new deduction for business income reported on individual tax returns. It would have cut income taxes even further if Congress passed federal legislation making it easier for states to collect taxes from online retail sales.

Nixon vetoed the legislation while citing technical drafting errors and concerns that a tax cut of hundreds of millions of dollars could drain money from public schools and other state services. A veto override attempt failed when House Republicans fell 15 votes short of the 109 needed for a two-thirds majority. As a result, the Senate never voted on a veto override.

This year, Nixon has said he will sign a tax cut of up to one-half of a percentage point for individuals, but only under certain conditions. It must be contingent upon full funding for public schools, state revenue growth of at least $200 million and new limits on tax credits for developers of historic buildings and low-income housing. And Nixon said the bill can't include a special tax deduction for pass-through business income reported on individual tax returns.

The bill Kraus originally brought to the Senate floor would have gradually cut the top individual income tax rate to 5 percent from the current 6 percent and phased in a business income deduction, so long as revenues kept rising by $100 million annually. It also expanded the deduction for low-income individuals.

After negotiations with the governor, Kraus then put forth a bill modeled on Nixon's criteria. Schmitt sought to replace it with a bill more closely resembling the original proposal.

Kraus then put forth a third alternative that would have satisfied Nixon's criteria of curtailing tax credits for developers without including any cut to the income tax rate. Schmitt again sought to replace that with a tax cut more closely resembling the original proposal.

While Senate Republicans remained stuck, the Republican-led House passed a pair of income tax cut alternatives — one targeted at businesses; the other affecting individuals and only certain categories of businesses. Both passed with 106 votes, with two Republicans absent.

Republicans are favored to win two out of three August special elections for vacant House seats, which could restore their majority to a veto-proof 110 seats in time for the Legislature's annual September session for considering veto overrides.

Senate President Pro Tem Tom Dempsey, R-St. Charles, cites this year's more unified House as a reason not to immediately compromise with Nixon and to instead pass a more aggressive tax cut favored by many Republicans. Senate Majority Leader Ron Richard, R-Joplin, is of the same mindset.

"There continues to be, I guess, different philosophies on the best way to pursue a bill and actually get something accomplished," Dempsey said. "Hopefully we'll be able to move forward quickly after our break."

Republicans will have eight weeks to figure it out. The session ends May 16.


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