(Updated 12:45 p.m. Fri., Feb. 14)
Missouri Gov. Jay Nixon has unveiled a tentative deal for a tax-cut package made with some Republicans in the state Senate, but his requirements could delay when -- or if -- the cuts go into effect.
In an address Thursday to the Missouri Press Association, Nixon – who vetoed a tax-cut measure last summer – said that he would sign a tax-cut bill under certain conditions: only if it fully funded the state’s chief aid program for public school districts, known as the “foundation formula,” and if the package also revamped the state’s tax-credit programs, which now cost the state budget roughly $600 million a year.
The governor said he also would reject any tax-cut proposals that trim taxes on “ ‘pass-through’ business income,’ " which Nixon said “primarily benefit well-heeled corporate partnerships like law firms” and do little to create jobs.
State Sen. Will Kraus, R-Lee’s Summit, plans to file a proposal, backed by the governor, that would appear to comply with Nixon’s demands.
Kraus’ bill would cut the state’s individual income tax rate by a quarter of a percent “only after the K-12 foundation formula is fully funded and only after $200 million in revenue growth,” Nixon’s office said in a statement. An additional quarter-percent cut would be enacted “after legislation is enacted to reduce low income housing tax credits to $110 million annually and historic preservation tax credits to $90 million annually.”
Such a proposal differs sharply from the tax-cut bill that Nixon vetoed last summer that primarily focused on business tax cuts. That bill was backed by major business groups, including the Missouri Chamber of Commerce and Industry. The General Assembly failed to override the governor's action, in part because he had strong support from school districts around the state that believed their state aid was at risk.
This session, a Senate committee recently approved a tax cut bill that would cost the state at least $900 million a year when fully implemented, and which Nixon called "fiscally irresponsible."
State Budget Director Linda Luebbering said that the tax-cut provisions that Nixon would support in Kraus' bill would cost the state between $340 million to $400 million a year, excluding any savings from trims in the tax-credit programs.
The tax credit cuts in Kraus' bill would appear to be in the range that might be acceptable to some backers of the programs, who include St. Louis Mayor Francis Slay. The current ceilings for the programs are $140 million for historic tax credits and $190 million for low-income credits, but Slay and some allies had agreed to lower caps during failed talks in the 2013 legislative session.
But the governor’s requirement that the foundation formula be fully funded could be a high bar for some Republican legislators who have been adamant about cutting state income taxes this year.
Republican opposition already emerging
"This isn't a meaningful tax cut,'' tweeted state House Majority Leader John Diehl, R-Town and Country and the chamber's "speaker-in-waiting." "Why do politicians think they know how to spend taxpayer $$$ better than taxpayers?"
But state House Speaker Tim Jones, R-Eureka -- and usually a sharp critic of the governor -- said he was withholding judgment until he could review the particulars of what Nixon is willing to support.
Speaking in general, the speaker said he was pleased that Nixon was at least willing to support some sort of tax cut. Citing Nixon's earlier opposition to some tax cut measures, Jones said, "It's a flip-flop. But it's a flip-flop that is good policy for all Missourians."
(Nixon and his staff repeatedly emphasize that he has supported several tax-cut bills while he's been in office, just not the huge ones that some Republicans have been promoting.)
Some Republicans already are balking at Nixon’s current budget plan, which calls for fully funding the foundation formula within two years. His budget proposal for the 2015 fiscal year, which begins July 1, would increase spending for the formula by $278 million, about half of the amount needed to fund the formula fully .
House Budget chairman Rick Stream, R-Kirkwood, said earlier this week that the House’s proposed budget would increase the foundation formula by a smaller amount. He added that House leaders believed the state could not afford to fund the formula fully within two years.
Meanwhile, the state’s income has increased by a lower amount than what the governor or legislators had predicted when drawing up the current budget – setting up the possibility that Nixon might have to make last-minute trims to comply with the state constitution’s requirement that the state end each fiscal year with a balanced budget.
That means it could be some time before state government sees the type of income growth stipulated in Kraus’ bill before a tax cut would go into effect.
Progressives raise concerns
Even so, the Missouri Budget Project – a progressive advocacy group – already is raising concerns about the possible tax cut package, saying it “may not provide adequate protections for the critical public services and works that strengthen our economy."
“These services include quality preschool through higher education that provide Missourians with opportunity; mental health, health and child welfare services that help Missouri families who are most in need; investments in public safety for our communities; and investments in our infrastructure for a strong economy,” the group said.
“Moreover, while the deal reportedly requires the foundation formula to be fully funded, it may not be protected in an ongoing fashion. Once the tax cuts go into effect, it seems that core education funding could then be reduced.”
The group noted that the state has had to make trims to programs for years. Even Nixon’s more-optimistic budget for the coming fiscal year would put state spending at roughly what it was for the 2008 fiscal year, before the economic downturn began.
In Thursday's address, the governor said that his tax-cut guidelines call for “protecting and investing in our public schools, reining in wasteful tax credits that benefit special interests, and putting more money into the pockets of working Missourians. These are the basic elements of a sensible and sustainable tax bill that I would sign."
And Nixon noted that any deal is not yet final. “It’s important to note that we’re in the early stages of this process," the governor said, "and so I will continue to work in the days and weeks ahead to make sure that the legislation being proposed is not altered to compromise these principles."