The Republican-dominated Missouri legislature, acting out an ugly combination of anti-tax ideology and pure selfishness, has enacted a drastic income-tax cut that could throw the state into economic disarray. As the 2014 legislative session drew to a close, Republicans rammed through SB 509, which will lower the Missouri income tax rate, thereby reducing state revenues by an estimated $620 million per year. Democratic Governor Jay Nixon vetoed the bill when it reached his desk, calling it reckless. But Republicans–aided by one Democrat–overrode his veto by one vote.
According to the St. Louis Post-Dispatch:
In five annual steps beginning in 2017, the bill will cut the state’s top personal income tax rate to 5.5 percent from 6 percent and provide a new 25 percent deduction for business income reported on individual returns.
The cuts will be implemented only if state general revenue grows by at least $150 million a year compared with the high-water mark of the previous three years.
What does that mean? In his veto statement, Governor Nixon described the law this way:
…52 percent of the tax savings would go to the top 7 percent of taxpayers. Meanwhile, a family making the median income of $44,000 a year would receive a tax cut of only $32, Nixon said.
The bill is projected to cut income taxes by $620 million a year by 2022, though Nixon has warned that the tab could be much higher.
The governor contends that unclear wording appears to get rid of state income taxes for about 2.5 million Missourians. He cited a line in the bill that says that the top income tax bracket — which applies to people earning more than $9,000 — will be eliminated.
The Missouri Budget Project, which opposed the new law, says that the $150 million trigger point doesn’t make sense, because “Missouri needs $250 million a year in general revenue growth just to maintain current levels of service.”
But cuts to education and safety-net programs are not the only consequences of SB 590.
The tax-rate reduction mimics a similar law enacted in Kansas–not exactly a great role model for anyone. Kansas has reduced its income tax rate, and its generally accepted that the ultimate goal is to eventually eliminate state income tax entirely. In response, earlier this year, Moody’s, the credit-rating agency, reduced that state’s rating from its second-highest (Aa1) to its third-highest ranking (Aa2). According to the Wichita Eagle, “The lowered rating could mean that Kansas and KDOT will have to pay higher interest rates to borrow money for public spending.”
Moody’s explanation of the reason behind its rating downgrade should be a caution to Missouri legislators as they embark on this risky tax experiment:
We do not view the lack of a state income tax, in and of itself, as a credit weakness,” the report said. “However, eliminating a tax that has been in place for many years and has accounted for a large share of revenue entails risks. As the state income tax is removed, Kansas’ revenue structure will become more dependent on excise and severance taxes and the full economic impact is unclear.”
So, reduced revenue from income taxes, coupled with potentially higher interest rates: Not a healthy combination.
Are you listening, Missouri? Currently, Missouri is among only nine U.S. states that have earned the prized AAA rating from all three of the U.S major rating agencies . If Moody’s follows its own Kansas precedent, Missouri could lose that lofty rating. As Governor Nixon said, “Because of this spotless record, school districts and local governments pay a lower interest rate on bonds issued. If Missouri were to be downgraded like Kansas, this interest rate would increase for future bond projects, resulting in hundreds of millions of dollars in additional interest payments.”
It’s futile to try to understand the logic behind this reckless move. By enacting this tax cut, Republicans–who loudly position themselves as the ‘”fiscally responsible” party–are undermining their own stated values by putting Missouri in financial jeopardy. I can only conclude that logic has little to do with this scenario: More likely, this law derives from the self-serving, anti-tax ideology of billionaire political manipulators like Missouri’s own Rex Sinquefield, whose fingerprints are all over this tax cut law. In recent years, Sinquefield has spent millions–via ad campaigns and, of course, massive campaign contributions to buy legislators’ votes– lobbying for the elimination of the state’s income tax. I can’t say with certainty that the bill that passed this week was a compromise nod to Sinquefield, but it’s hard to avoid that conclusion.
When I first came to Missouri, in the mid-1960s, the political landscape was fairly evenly divided between Republicans and Democrats. That balance has evaporated, and under Republican rule–saved only by the governorship of a Democrat–the state is declining fast, as witnessed most recently by the state legislature’s refusal to expand Medicaid under the Affordable Care Act. It’s also worth noting that during the Civil War, Missouri was a border state-meaning a slave state that didn’t secede from the Union. Loyalties were divided within the state between the Confederacy and the Union, and those divisions are still in evidence. Before the 1980s, the rest of the country viewed Missouri as Midwestern, aligned with states like Iowa and Minnesota. If sports alliances are an indicator, Missouri was a member of the Big Eight–a decidedly Midwestern, plains-state league. Now, even that has changed, and in 2012, the University of Missouri joined the SEC, long known as a southern sports conference. That says a lot about where Missouri is going.
The southward, right-wing, kill-government drift is becoming quite clear all around me in my liberal, suburban, St. Louis island, and I’m feeling less comfortable and more depressed about the future than ever.