Kansas City, Mo. Missouri Gov. Jay Nixon vetoed legislation Wednesday that would have cut Missouri’s income tax rate for the first time in more than 90 years, denouncing it as an “ill-conceived, fiscally irresponsible experiment.”
The tax cut was one of the top priorities of Missouri’s Republican-led Legislature and would have been one of the state’s most aggressive volleys in an ongoing battle to attract businesses against its tax-cutting neighbors to the west.
But the Democratic governor outlined numerous philosophical, financial and technical objections to the bill in what was perhaps his most strongly worded veto message in five years as chief executive.
“This legislation is an ill-conceived, fiscally irresponsible experiment that would hurt our economy and jeopardize funding for vital public services,” Nixon said in a written statement. He promoted his veto by traveling to Kansas City — the epicenter of a cross-border battle for businesses with Kansas.
Some Republican legislators vowed to consider a veto override in September. But to be successful, they would need the votes of every Republican in the House or otherwise would have to pick up support from some of Nixon’s fellow Democrats.
Bill sponsor T.J. Berry, R-Kearney, said the override strategy will focus on Republicans. Sen. Will Kraus, the measure’s main architect, said the income tax cut was “a responsible way to make Missouri more competitive in the national job market. “
“The governor’s action sends a loud message to Missouri businesses that we’re not interested in trying to retain you,” said Kraus, a Republican from the Kansas City suburb of Lee’s Summit. He added: “If we do nothing, those jobs are going to leave our state.”
The Missouri legislation sought to provide tax relief to small businesses by phasing in a 50 percent deduction over five years for business income reported on individual income tax returns. It also would have gradually cut Missouri’s corporate income tax rate nearly in half and lowered the top tax rate for individuals from 6 percent to 5.5 percent over the next decade.
Though it would have been Missouri’s first income tax rate reduction since 1921, the measure still was less sweeping than an income tax cut passed last year in Kansas that created a hole in the state budget.
Missouri lawmakers had sought to partially safeguard the state’s finances by making the rate reductions for corporate and individual taxes effective only if state revenues grew by at least $100 million annually over their high point from the previous three years.
But Nixon raised concerns that the tax cut could nonetheless jeopardize funding for essential services. He noted that The Civic Council of Greater Kansas City, comprised of local business leaders, had asked him to veto the bill for many of the same reasons.
“Gutting the budgets of public schools and public safety for the sake of an economic experiment is a gamble that Missourians are not willing to take,” Nixon said at the Kansas City news conference.
Nixon said legislative projections that the bill could eventually reduce state revenues by almost $700 million annually were dramatically understated.
He said Missouri could lose $1.2 billion in a single year if the following happens: Congress passes a measure allowing states to more easily collect online sales taxes, which would trigger an automatic one-half percentage point reduction in Missouri’s income tax rate, and people then claim a retroactive tax refund for the previous three years.
Nixon also cited concerns, which he first raised last week, about a provision that would repeal an existing sales tax exemption for prescription drugs, potentially costing consumers more than $200 million annually. Republican legislators said it was a bill-drafting error and had offered to fix it before the prescription tax hike would take effect in 2015.
The governor also cited objections Wednesday to a provision that would repeal a sales tax exemption on college textbooks. He said the measure would make Missouri’s tax code less fair by granting larger tax breaks to owners who structure their businesses in certain ways. And he said the financial triggers on the incremental tax cuts “provide only a false sense of security” that could fail to halt tax cuts in an economic downturn.
Nixon’s veto was criticized Wednesday by two of the state’s leading business groups: Associated Industries of Missouri and the Missouri Chamber of Commerce and Industry. Bill supporters have expressed concerns that western Missouri businesses may move to Kansas to take advantage of their lower taxes.
Kansas followed up last year’s tax cut by passing an additional tax reduction Sunday, gradually reducing its top income tax rate by an additional percentage point — to 3.9 percent — over the next five years. To partially offset the lost money, Kansas would forgo most of a scheduled sales tax reduction.
Oklahoma lawmakers also passed an income tax cut this year, reducing the top personal tax rate from 5.25 percent to 5 percent in 2015, with a second cut to 4.85 percent scheduled to take effect in 2016 if state revenues increase enough to pay for it.
Nebraska Gov. Dave Heineman signed several tax bills into law Monday, including one eliminating the state’s alternative minimum tax and another doubling the deductions people can claim for contributions to a state-sponsored college savings program.