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Analysis: Lawmakers' vote not final say on Missouri tax cut

Sunday, May 4, 2014 | 9:04 p.m. CDT

JEFFERSON CITY — Missouri legislators plan to vote this week on whether to override a veto by Democratic Gov. Jay Nixon and enact a law cutting state income taxes for individuals and many business owners.

But their vote won't be the last factor in determining whether the tax cuts actually occur.

That ultimately will depend on the economy — or, more specifically, on the amount of taxes paid to the state.

The legislation would phase in the tax cuts starting in 2017, so long as state revenues grew by at least $150 million over their high mark from the previous three years. Each additional incremental tax cut would depend on that same formula.

Had that criterion been in place during the past decade, the tax cut would have occurred in half of the years. Had it been in place over roughly the past four decades, the tax cut would have been triggered in 20 years, but not in 16, according to an Associated Press analysis of historical state revenue figures.

In short, history would suggest that the tax cut is no sure thing.

That's fine for Republican supporters of the legislation. In fact, they contend the uncertainty of the tax cut is one of its best selling points.

Because of the $150 million revenue trigger, "there are tons of protections in there for core levels of budgets," said Sen. Will Kraus, R-Lee's Summit, who sponsored the legislation. "This bill is a realistic way to cut taxes without hurting current levels of funding."

Yet Nixon calls the legislation "an ill-conceived, fiscally irresponsible experiment."

"There are no protections for public education in this bill," Nixon said at a Capitol news conference when he vetoed the bill Thursday. He added, "These triggers are losers."

Because of how the bill is written, Nixon says it's possible that a tax cut could occur even in the midst of a recession. In fact, that would have been the case during the Great Recession of 2008 and 2009.

Missouri revenues grew by $287 million during the fiscal year that ended in June 2008. That would have triggered a tax cut for the 2009 calendar year. But the full impact of that tax cut would not have been felt until those 2009 tax returns were due on April 15, 2010.

That means the tax cut would have occurred as state revenues were plummeting. In 2009, Missouri revenues fell $553 million. They dropped an additional $676 million in 2010, bottoming out at a little under $6.8 billion.

"Had this bill been in effect, steep cuts to education and vital public services would have been unavoidable, as the tax cuts would have continued reducing revenue regardless of objective economic conditions," Nixon wrote in a veto message to state lawmakers.

Under the bill, the first tax cut could not occur until 2017. That would happen only if revenues for 2016 were at least $150 million above their high mark in the 2015, 2014 or 2013 state fiscal years. In 2013, Missouri's net general revenues were a little less than $8.1 billion, just barely above their pre-recession level.

A state revenue report released Friday showed that revenues grew just 0.5 percent through the first 10 months of the 2014 fiscal year and, most recently, have been trending downward. If revenues continued to fall next year (though that is not forecast), they would have to rise in 2016 to a level that's $150 million over 2013 in order for a tax cut to occur.

Put another way, Missouri would need revenue growth of a little less than 2 percent over an entire four-year period for the first phase of the tax cut to occur. That doesn't appear too difficult to achieve. Over the past decade, the average annual rate of inflation has been 2.4 percent.

"The likelihood is we're going to grow by more" than the revenue trigger, Kraus said. He added, "We're just saying a portion of that will be returned to taxpayers in a reasonable, responsible way."

Under the bill, the soonest the tax cuts could be fully phased in is 2021, meaning their effect would be felt on taxes due in April 2022.

The state Department of Revenue has projected that a married family of four earning $44,000 annually would get a tax cut of $32 once the law is fully in effect. Those earning more would get more back. Nixon said that's not worth foregoing the tax revenues that could be spent on education.

"Here's the tradeoff," Nixon said. "In exchange for larger class sizes, fewer teachers and higher tuition, Missouri families get the equivalent of an oil change, eight years from now."


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