Tax cut battle underway at Capitol

Wednesday, April 23, 2014

School districts fear loss of revenues from plan

The Missouri Legislature has approved a bill that would lower individual income taxes, and give a special break for those who report business income on their personal taxes, setting up a veto and override battle at the state capitol.

The bill, Senate Bill 509, would cut income taxes by an estimated $620 million per year by incrementally cutting the state's top personal income tax rate from 6 percent to 5.5, and phasing in a 25 percent deduction for business income reported on individual returns.

Democratic Missouri Gov. Jay Nixon has said the bill, which is similar to one he vetoed last year, would be a detriment to education funding in the state, and may lower Missouri's AAA credit rating.

State Rep. Scott Fitzpatrick, R-Shell Knob, said he voted in favor of the bill, along with all House Republicans and one House Democrat, because he believes it will help spur business in the state.

"By reducing the tax rate, we will really help out small businesses," he said. "With the current tax brackets, there is not a single state with an individual tax rate as high as ours with incomes as low as ours. Our tax brackets are ancient...[and] any time we can cut taxes and give money back to the taxpayers, it's a good thing."

State Sen. David Sater, R-Cassville, voted in favor of the bill and said such a tax cut would have been a big benefit to him when he still owned a business.

"I believe giving money back to small businesses and individuals will stimulate the economy and increase general revenue," he said. "I would have used that extra tax money to increase my inventory, remodel my pharmacy or hire more employees, and that would have been a blessing."

Richard Asbill, superintendent of the Cassville R-4 School District, said he is disappointed in legislators focusing on the tax bill before the Missouri school funding formula has been fully funded.

"The legislature has approved a funding formula that remains underfunded, and local legislators have a responsibility to fully fund the formula first, before proceeding down a legislative path that may or may not generate funds to provide the services Missouri citizens depend on," he said. "The effort by the legislature and the governor to fund education is important, and we appreciate it, but it the greater issue is that it's still not funded, and if the legislature can't fix what it has already created, how can it create additional legislation?"

According to an analysis by the Missouri Budget Project released last month entitled "A Shaky Foundation," the formula is still underfunded by $656 million, averaging about $700 per student state-wide, and Barry County schools are underfunded by more than $850 per student.

If the tax cut is approved, data requested by the Missouri School Boards Association says Barry County schools will lose about $2.16 million in funding. Losses to each district would include: Cassville R-4, $539,940; Exeter R-6, $120,842; Southwest R-5, $271,339; Wheaton R-III, $159,226; Shell Knob 78, $8,831; Purdy R-2, $234,273; and Monett R-1, $822,100.

The Missouri House of Representatives passed the bill on April 9 with a 104-48 vote, only five votes short of the number needed to override a veto, and the Missouri Senate passes it with a 23-9 vote, which is enough for an override. Eight members of the House were not present for the original vote.

Fitzpatrick said if a veto is given, an override is highly likely.

"It takes 109 votes to override a veto or we're not going to get there," he said. "but, given that we had one Democrat vote for the bill, I'm pretty sure all the Republicans will stick together."

Sater said an override in the Senate is also likely if Nixon vetoes the bill, and he hopes the tax cut will increase growth and help fully fund the formula.

"If the governor vetoes, I'm sure the Senate will override it, and there's a better chance for the House to override it this year," he said. "We're also getting close to funding the formula, and I want to fund the formula. But, I'd like to do it through tax incentives that raise general revenue. That's my business philosophy.

Nixon has until May 1 to veto the bill, and an override could come before the legislative break this summer, as the legislature is in regular session until May 16 and would not have to wait until September's veto session.

The bill Nixon vetoed last year would have implemented a larger tax cut, and over the summer break, Nixon convinced 15 House Republicans to side with him and prevent an override.

If enacted, Senate Bill 509 would take effect in 2017 and gradually lower the income tax rate over a five-year period, but only if revenue grows by at least $150 million per year.

The bill would also change Missouri's tax brackets for the first time since 1931, increasing the personal deduction by $500 for those who earn below $20,000.

Nixon has said the effect of the cuts would make it impossible to fully fund the aid formula for K-12 schools, a plan he has been promoting in part by visiting Cassville Schools in February.

Asbill said he appreciates Fitzpatrick's work for education, but said going for the tax cut while the education formula is not yet funded is playing politics.

"Rep. Fitzpatrick is a product of public education, and we appreciate his support, but, I think his position requires a responsibility to focus on representing the interests of his local school districts, and not always representing political interests," he said. "Parents and teachers support him, and he is seeking reelection based on their support, and we ask respectfully that the underfunded school districts be his No. 1 priority. Tax cuts for economic development are important, but they should be second to fully funding education."

Fitzpatrick said because of the implementation plan and the revenue stipulation, he does not believe the cut will hurt education funding.

"This cut occurs in five phases and only goes into effect if we have an increase $150 million," he said. "Each phase is only cutting $125 million, so net revenue would still be at a positive. We've added $278 million to the foundation formula this year, and if the governor is correct in his revenue estimates, and we hold that trend and make the same commitment next year, then by the third year, we will be close to if not have fully funded the formula prior to the first phase of cuts going into effect."

Asbill said he hopes the formula is fully funded before any tax cut is given, and said it is frustrating to him when legislators choose party interests over local interests.

"There's no guarantee what the legislature has proposed will work, and it gets back to the philosophical issue of the obligation to fix what their predecessors have created," he said. "If they fix the formula and fund education first, they can get a real number of what will be positive or negative in budget growth. My fear is the Cassville School District is becoming a political tool or sacrifice for political party gain, and that's unfortunate, and it's not good for the kids.

"Too often, schools are placed on the political battlefield and that is not productive to Missouri's future and it is not beneficial to parents, students, teachers, and local school districts who expect elected officials to represent their constituents before party politics."

Fitzpatrick also said the state's credit rating should also not be at risk.

"[Losing the AAA credit rating] is the governor's go-to for anything he does not like, and the state constitution says public debt is the first thing we have to pay," he said. "It's only at 1 percent of general revenue, and even through the recession, we've always made the payments, so I don't think this small of a tax cut will have an effect."

Fitzpatrick said many have compared the plan to one implemented in Kansas, but said the Kansas plan cut taxes immediately, and Missouri's plan differs in that it is phased in and requires the $150 million per year in revenue growth.

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