Two weeks ago, the Missouri Legislature approved legislation to provide tax relief to hundreds of thousands of citizens and countless small businesses throughout the state. The bill enacts a measured, carefully considered tax cut, but also contains triggers to ensure rates aren’t reduced unless certain economic benchmarks are met, including a substantial increase of revenue collections.
The legislation has the potential to boost our economy, let families keep more of their hard-earned money, and finally address a tax policy that has long contributed to Missouri’s anemic economic growth. The money citizens save can be reinvested in local businesses, generating more state revenue while encouraging expansion.
Opponents of the legislation, including the executive branch, almost immediately began barnstorming the state expressing their opposition to a bill that lets Missouri taxpayers keep more of their hard-earned money. The governor has all but promised to veto the bill. The deadline for him to act on the bill is Thursday, May 1. Once the bill has been vetoed by the executive branch, lawmakers will have the opportunity to override it.
What’s particularly frustrating about this situation, though, is that I’ve seen no actual data, no studies, no analysis, to backup claims from those against the tax cut measure. So far, all I’ve heard is empty rhetoric regarding opposition of this bill. In other words, evidence has been nonexistent.
Here are the facts regarding Senate Bill 509. The bill would change Missouri’s tax code in three major ways. First, it would reduce the maximum tax rate on personal income by one-half percent over a period of years, beginning in 2017.
Second, the bill allows an individual income tax deduction for small businesses set up as flow-through entities, like limited liability companies, S-corporations and partnerships.
Third, the bill grants a $500 income deduction for individuals who earn less than $25,000, and possibly a $1,000 deduction for joint filers if the spouse earns less than $20,000.
Additionally, the legislation requires tax brackets for individual income to be adjusted annually for inflation. I’ve long believed inflation is a hidden tax. Inflation causes wages to rise, but higher earnings equal higher taxes, undercutting any economic gain for the individual. Then, on top of that, the prices of goods and services go up. We need a tax structure that takes that into account.
Most importantly, though, is that none of these reductions or deductions will take place unless triggers within the bill are met. Revenue collections must increase by $150 million more than the highest amount from the last three years and doesn’t go into effect until 2017 to allow time for full funding of the foundation formula, a goal of both the Legislature and the governor.
Now, one of the main points of contention regarding this bill is the fiscal note, which is around $600 million after all the cuts are phased in, contingent upon the benchmarks being met. However, a fiscal note on a bill rarely tells the whole story.
The fiscal analysis on a bill is static. It simply states that if you cut taxes by this much, this is how much less revenue you’ll have. But, that doesn’t take into account at all the economic growth that will result from this bill. Public policy, particularly taxes, drives public behavior. If people have more money to spend, they’ll spend it. If businesses have more capital on hand, they’ll expand and hire more workers. That increases revenue, offsetting the tax cuts fiscal impact.
Time and time again, studies have shown that reducing tax rates has a direct effect on a state’s economic growth. Right now, Missouri is 48th in the nation for growth. It’s not going to get better until we address our tax policy. Senate Bill 509 is a step in that direction.
Opponents have also tried to convince people that this tax cut bill will result in a cut to education. This is not the case at all. The Senate continues to support our children’s education. This year, we added an additional $155 million in general revenue to state support for elementary and secondary education, with the potential for a total $278 million increase if net total general revenue collections increase above projections. Missouri’s Constitution requires 26 percent of state revenue to go to education. We are now at 33 percent, and by adding a possible $278 million new dollars next year, the percent will be even higher.
If there is data that clearly shows this tax cut could endanger the fiscal stability of our state, I will take that into consideration. I will always weigh both sides of an argument to do what’s best for our district and the state. But until there is some kind of thorough, careful analysis from opponents of the measure, I’m going to continue to support a bill that could benefit our entire state.
On a personal note, I was honored to receive the Silver Star banner and certificate by the governor for my service in the U.S. Air Force during Vietnam. The governor also awarded the banner to Edward “Babe” Gross, of Jefferson City, who served as a radio operator and machine gunner on a bomber in the South Pacific during World War II; James Shipley, of Tipton, who served as an airplane mechanic with the famed Tuskegee Airmen, known by their nickname “Red Tails”; and Bill Stroud, of Columbia, who served as an infantry rifleman in the Army during the Korean War. It was a wonderful ceremony, and I was happy to see my fellow veterans recognized for their sacrifice.