Tax cut plan needs Missouri Senate vote

With surprising quickness, the Missouri Senate last week gave its preliminary approval to a major tax cut bill.

The proposal, sponsored by Sen. Bill Eigel, R-Weldon Spring, would reduce the top individual income tax rate from its current 5.9 percent to 5.25 percent in 2019.

That would be a quicker reduction than currently required by a 2014 law the Legislature passed over then-Gov. Jay Nixon's veto.

The bill also would reduce Missouri's corporate income tax rate from 6.25 percent to 5.25 percent, starting next year.

Right now, the legislation is projected to reduce state general revenues by $8 million in its first year and about $50 million in its second year.

But, before it can come to a final vote in the Senate and be sent to the House, the Senate's Fiscal Oversight Committee has to give it a new fiscal note - the estimate of what the law might cost the state over the next few years.

"I'm sure that fiscal note's going to be a choker," Senate President Ron Richard, R-Joplin, told reporters Thursday afternoon, as the Legislature ended its work for the week.

Richard had been presiding over the Senate's debate Wednesday when Eigel brought the bill back up for debate, offered a substitute and then won approval of that substitute in roughly 30 minutes.

"Apparently, he had enough buy-in that people believed it's going to be in the best interests (of the state)," Richard said.

Senate Floor Leader Mike Kehoe, R-Jefferson City - whose job includes working with lawmakers to get their bills debated and voted on - noted Eigel had talked with most senators, "Democrat and Republican, going through the bill and asking them what they liked or didn't like, and trying to accommodate their needs."

But that won't guarantee passage of the bill when it comes to a final vote.

Richard voted "no" Wednesday.

"My reservation's still, we have a tax cut in place that we're still trying to figure out the effects on the budget from (2014)," he explained. "We have a tax cut from Washington, D.C. (this year), that we're still feeling the effects of.

"(And) it's not a tax-cut bill. It is 'revenue neutral,' (which) means you're lowering taxes on somebody and you're raising taxes on somebody else."

For instance, the proposed new law would eliminate the state income tax deduction for corporate taxes that are paid to the federal government, limit the state tax deduction that individuals can take for taxes that are paid to the federal government, and reverse a recently enacted tax apportionment option that has benefited some businesses.

Richard would like to know more about how those changes will affect Missouri's revenues in the future.

"I'd like to leave the state of Missouri in a position where they actually have enough money to do business," he explained. "I'll stand my ground, and I'll try to protect Missouri financially in the best way that I can, (including) the AAA bond rating."

All three bond ratings companies in the United States have continued giving Missouri that AAA rating, which is the best available, and means the state gets the best rates when it borrows money or sells bonds to raise money.

And Missouri has kept that rating since the late-1960s, when Democrat Warren Hearnes was governor.

Senate Appropriations Chairman Dan Brown, R-Rolla, didn't vote Wednesday on the preliminary approval motion, because he was in a meeting about another budget issue.

But, Brown told reporters last week, he also is concerned about the long-term effects of Eigel's proposal.

"The numbers are estimates - and you have to be really careful with estimates when you could affect the budget by $300 or $400 million, either way," Brown said. "All these policy changes that we do - someone has to make those numbers work."

Brown is term-limited, and will leave the Legislature at the end of this year.

"We see what Kansas and Oklahoma are doing," Brown said, "and you know, they did a lot of tax cuts and tax reform, and now this year, they're passing bills to really raise taxes."

In Missouri, lawmakers can't just reverse course if a tax cut is too deep, because the 1980 voter-approved Hancock Amendment to the Missouri Constitution requires voters statewide to approve major tax increase proposals.

"I don't want to see Missouri get into that shape," Brown said, "and would hope that we could be very knowledgeable about making (tax cut) decisions."

Kehoe voted "yes" Wednesday.

He told reporters he does have some concerns about the bill.

"We want to make sure that we don't leave the state in a financial bind," he explained.

More importantly for him, the bill includes a phased-in fuels tax increase - by as much as 10 cents over a five-year period - to help do more work building, and maintaining, the state's roads and bridges.

Kehoe served on the Missouri Highways and Transportation Commission a decade ago, before running for and winning the state Senate seat he must leave at the end of this year because of term limits.

He noted every 1-cent increase in the state's fuels tax provides about $30 million more each year for Transportation Department projects.

"So, 10 cents (more) - obviously easy math - is about $300 million," he said. "But the highway construction budget is about $700 million short - when I was on the commission, it used to be about $1.4 billion, and it's about $700,000 now.

"So, it doesn't address that whole gap, but it certainly goes a long way to helping us fix some of the concerns that we have, should the Feds change their match requirements."

And, Kehoe said, based on his conversations with several GOP members of Missouri's congressional delegation, "There's likely going to be a change in that federal match. And I think Missouri needs to be ready for that."

Eigel calls his plan the "Missouri Economic Relief Act," and says it "would be the largest tax cut in the history of Missouri."

His plan ultimately would reduce Missouri's income taxes by about $1 billion, with the impact offset by some changes modifying, reducing or eliminating some current taxing benefits.

He explained in a podcast earlier this month: "This is the best thing that we can do to get Missouri growing, similar to the way that states like Texas, Florida and Tennessee - some of the fastest growing states in the country - don't have an income tax.

"And the more that we can move toward that model of collecting revenues to spend on state priorities, the more people are going to be interested in moving to this state, starting businesses here and raising families here."

Currently, income taxes are a major part of Missouri's revenue picture.

Richard urged caution when looking at other revenue sources.

"We tried that back in the House when I was speaker," he said. "It's called the 'Fair Tax' - and it started out like 8 or 10 cents (for the sales tax) and (then it went to) 16 to 20 percent for the sales tax.

"That was probably the dumbest idea I've ever heard - at least today anyway."

The Associated Press contributed some information used in this story.