Nixon and Republicans differ by $4.2 billion on interpretation of tax cut bill

Tuesday, April 22, 2014 | 9:39 p.m. CDT
Gov. Jay Nixon speaks Tuesday at the Columbia Public Schools administration building against a Missouri tax-cut bill, which he is expected to veto.

JEFFERSON CITY – Republican leadership in the Missouri General Assembly and Democratic Gov. Jay Nixon have different interpretations of a tax cut bill recently passed by the legislature, which aims to cut the state’s income tax. Their estimates differ by about $4.2 billion.

The bill would reduce the top tax bracket, which taxes income over $9,000 a year at 6 percent. Starting in 2017, that rate would be reduced 0.1 percent each year that revenues grow by $150 million.

Changes in the bill:

Senate Bill 509 would make several changes to the tax code for individuals making more than $9,000 a year. The changes would be implemented beginning in 2017 and only in years where state revenue is greater than the previous fiscal year.

Changes include:

  • A 0.1 percent decrease in income tax each year, stopping at 5.5 percent for the highest tax bracket.
  • A 5 percent deduction each year on income earned from business transactions. This would cap off at a 25 percent deduction.
  • A $500 deduction for individuals and their spouses if both make less than $20,000

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The bill says the top tax bracket “shall be eliminated” once the top tax rate is reduced 5 times, putting it at the same rate as the second highest bracket, which taxes income between $8,000 and $9,000 at 5.5 percent.

The bill also cuts taxes on income from business transactions and has a $500 deduction for people making under $20,000, but the differences in the estimates stem from their differing interpretation on the tax cuts to personal income.

Nixon said this would remove the taxes on all income over $9,000, which could cost Missouri about $4.8 billion a year, essentially removing about two-thirds of the state’s general revenue. The legislators in neither the House nor Senate addressed this interpretation during the debate of the bill. 

The financial note on the most recent version of the bill does not estimate the budget would be affected until 2018, assuming the first reduction is in 2017. After five years the highest tax rate would be 5.5 percent, reducing state revenue by almost $621 million annually, according to the note. 

"Regardless of their intent, Senate Bill 509 would devastate our economy, bankrupt our state, cripple our schools, and it cannot become law," Nixon said.

House Majority Floor Leader Rep. John Diehl, R-Town and Country, said at a press conference that Nixon’s interpretation of the bill is “laughable," and Nixon is “100 percent wrong.”

"If this were a true, good faith argument, (The Division of) Budget and Planning would have put this fiscal note at $4.8 billion, and they didn’t do that," he said. "They looked at it twice. They never discovered that. This is made up."

House Speaker Tim Jones, R-Eureka, said Nixon doesn't have any problems that he can point to with the bill, so he's creating one.

"He is making a misinterpretation of this bill and arguing it as fact," Jones said. "It’s a complete and utter fabrication."

Diehl said there’s no way the Missouri Supreme Court would agree with Nixon’s interpretation on the bill. Republicans leaders circulated a memo from former Missouri Supreme Court Justice William Ray Price, Jr. that said the former Justice believed the courts would agree with the Republicans’ interpretation over Nixon’s.

Nixon countered at his own press conference by saying he thought it was too big of a risk to take.

"My job is not to speculate about how some judge might rule someday, but to read what the bill actually says," he said. "Some folks may be willing to gamble the finances and future of our state in the hopes that a judge will rule their way. I am not."

Diehl dismissed the idea of rewording the bill to remove this interpretation because the governor will find another problem with the bill.  

"So if we fix this one, there’s another problem and another problem," he said. "We’re playing a constant game of whack-a-mole. There’s nothing wrong with this bill… If he vetoes it, we’re going to over-ride it."

Even though Nixon said the bill cannot become law, he said he would not veto it immediately so the legislators will have time to hear from their constituents. 

Both houses of the General Assembly need a two-thirds majority to override a veto. The Senate passed the initial bill with a veto-proof majority, but the House did not.

The House would need all Republicans to vote to override and one Democrat to join them. All House Republicans in session voted for the bill but there were several missing for the vote. One Democrat, Rep. Jeff Roorda, D-Barnhart, voted for the bill initially.

Roorda said he talked with the Governor’s office on Thursday but they weren’t pressuring him to change his vote. He said the bill is not perfect because it does too much for the wealthy and not enough for the working class, though it still provides some tax relief to his constituents.

Roorda voted for last year’s tax cut bill, HB 253, that Nixon vetoed but changed his mind when the Governor’s office revealed more costs associated with the bill than originally planned. 

Nixon said he vetoed HB 253 because it would have cost the state $800 million and had the potential to cost the state a total of $1.2 billion if Congress changed the laws on collecting online sales tax.

"When we learned that the price tag was bigger, and learned that the trigger was defective and learned that there was a hidden tax on textbooks and pharmaceuticals, it became unpalatable, and I changed my vote," he said.

Roorda said he could change his mind by the time it came to vote on a veto override. He said he hasn’t reviewed Nixon’s statements on this most recent tax cut bill, but the possible loss of $4.8 billion has given him pause in any vote to override a veto.

"Any legislator sitting out here in this chamber that says he can’t be persuaded by facts isn’t doing his job," Roorda said. "I can be persuaded by these arguments, and I’m just waiting to hear what the governor says and what the other side says."

If Roorda were to change his vote, Republican leadership would need to find one other Democrat to join them while retaining all the Republican votes to override a veto. 

Nixon has until May 1 to veto the bill or it becomes law. If the bill is vetoed the General Assembly can attempt to override at the veto session in September.

Supervising editor is Stephanie Ebbs.

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