Gov. Jay Nixon is barnstorming Missouri, warning that an override of his veto of a controversial income-tax bill could cost the state $1.2 billion, devastate schools and services, and wreak permanent havoc with the state’s finances.
Republican leaders of the General Assembly accuse Nixon of carrying out a scare campaign. They say their bill contains safeguards, and the economic boost from lower income taxes would quickly make up for any budget shortfall.
The fight is in full throttle as a Sept. 11 veto session draws near. GOP leaders want their troops to vote for an override of the governor’s veto of House Bill 253, which cuts taxes on some business incomes and, to a lesser extent, personal incomes, over a period of time.
But Nixon’s objections are solid. Analysts with little political skin in the game agree that House Bill 253 is poorly drafted and underestimates the extent of the cuts on a number of fronts.
The biggest wild card allows for a cut of a half percent in personal income taxes if the U.S. Congress passes the Federal Marketplace Fairness Act, a bill making it easier for states to collect taxes on Internet purchases. Authors of House Bill 253 say new sales tax revenues of at least $343 million a year would offset the $300 million or so the state would lose from the tax cuts.
But Nixon and others point to academic studies that estimate Missouri would likely receive only about $212 million in taxes from online sales, and more than half of that would go to local governments. Plus, the new revenues would take some time to arrive, whereas the tax cut would take effect right away.
Compounding the problem is what appears to be one of several major drafting errors in House Bill 253. Language says the tax changes, including the half-percent cut triggered by passage of the Marketplace Fairness Act, would apply to “all tax years beginning on or before” the effective date of the changes.
Nixon and others think that makes the half-percent tax cut retroactive. A different state statute limits the window on collecting tax credits or refunds to three years. That means Missourians could claim a total of $300 million or more worth of tax cuts if Congress passes the federal law, and they would be entitled to claim the same amount for each of the three previous years. That accounts for Nixon’s projection that the state could quickly be out $1.2 billion.
Republicans hotly dispute that scenario, saying they didn’t intend to make the cuts retroactive. But intent may not be enough. A court is likely to be more focused on the bill’s actual language.
House Bill 253 is carelessly drafted and would have enormous negative consequences. Its risks greatly outweigh its rewards; there is no good evidence the proposed cuts would create jobs, and middle-income families would see very little lift. Lawmakers should be grateful Nixon’s veto gives them a way out of the mess they created
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