Senate panels hears testimony on scaling back tax breaks

By Wes Duplantier

JEFFERSON CITY – Republicans in the Missouri Senate are looking to dramatically lower the tax bills of business owners in the state, saying that the actions of surrounding state legislatures could leave Missouri’s economy in the dust if lawmakers don’t act quickly.

Sens. Eric Schmitt and Will Kraus each have put forth proposals that would cut the state’s corporate income tax rates and also allow business owners to deduct part of their business income from their individual tax returns.

Both senators told a Senate tax committee last week that the changes are necessary if Missouri wants to compete with states like Kansas. As of Jan. 1, business income in Kansas is now exempt from the state’s income tax and conservative lawmakers there are now pushing to eliminate the individual income tax altogether.

“The fact of the matter is, we are in a competition among other states,” said Schmitt, R-St. Louis County. “We don’t operate in a vacuum. We’re part of a larger decision-making process for business owners.”

In contrast to the Kansas changes, the measures sponsored by Schmitt and Kraus, R-Lee’s Summit, would allow for deductions of business income rather than an a full-bore exemption.

Schmitt’s measure would allow business owners to deduct as much as half of their business income by 2017 while Kraus is pushing for a 25 percent deduction by 2016. Both senators want to lower the state’s current corporate income tax from 6.25 percent, with Schmitt calling for it to be cut in half and Kraus looking for it to be cut to 3.25 percent.

Kraus’ measure would also eliminate the top two tax brackets on individual income in Missouri, making the state’s top tax rate 5 percent.

Several business groups who spoke to the tax committee echoed the senators’ sentiment that Missouri is in a fight to stop business from migrating across its borders. Ray McCarty, the head of Associated Industries of Missouri, said that the state cannot wait to see how the Kansas tax changes affect its business climate without risking damage to its economy.

“If you wait until after the bomb has already gone off, you know what the damage is,” he said. “But do you really want to wait until the bomb has gone off or do you want to try to fix it ahead of time?”

But the tax measures could see significant opposition in the Senate because of their projected impact on state revenue. A fiscal estimate attached to Schmitt’s bill said it could cost the state as much as $200 million in revenue by 2016, while the cost the yearly cost of Kraus’ bill was pegged at more than $924 million per year within three years.

Democrats on the tax committee, such as freshman Sen. Paul LeVota, worried that taking that much revenue from Missouri’s tenuously balanced budget could put vital state services, such as education or road construction, on the chopping block.

“We’ve seen the Kansas cut and now they can’t fund their schools,” said LeVota, D-Independence. “We see that we have cut and we’ve given away a lot of tax credits and now we can’t fund our foundation formula. If we dig into tax policy that helps create jobs, which we all want do, let’s make sure that we’re still paying for the basic obligations of the state.”

Media outlets in Kansas have reported that the state faces a projected budget deficit of more than $200 million for the coming fiscal year after enacting its tax changes.

Republicans on the tax panel defended the bills from Schmitt and Kraus, saying that lower tax rates would eventually create a larger amount of taxable economy activity that could make up for the lost revenue.