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New Missouri tax cut proposal draws fire from all sides in Senate

New Missouri tax cut proposal draws fire from all sides in Senate

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JEFFERSON CITY   •   State senators didn't show a lot of love today for a tax cut proposal that grew out of negotiations between Republican Sen. Will Kraus and Democratic Gov. Jay Nixon.

Republicans said it didn't go far enough in offering tax relief to small businesses.

Democrats said it went too far and would harm vital state services.

At issue was a greatly scaled-down version of the tax cut that Nixon vetoed last year, calling it a dangerous experiment.

The new proposal could reduce the state's top personal income tax rate to 5.6 percent from 6 percent, if certain conditions were met.

It also could exempt from taxes 25 percent of the first $100,000 in business income that is "passed through" to personal returns.

The bill's implementation would be contingent on several factors, such as full funding of the state aid formula for K-12 public schools and passage of separate legislation capping two large development tax credit programs.

Also, state revenue would have to grow by at least $200 million compared to the high-water mark of the previous three years.

Kraus, R-Lee's Summit, said the plan would return around $400 million a year to taxpayers, if it was fully implemented. He said he had talked with the governor's office about the bill and he predicted that the governor would sign it.

Sen. Kurt Schaefer, R-Columbia, objected to making the tax cut dependent on a raft of conditions demanded by Nixon.

Schaefer said the governor's office is "pretty slick" at designing conditions that will never be met. He likened the requirements to saying, "If somebody stands on their head on a Tuesday, we get a tax cut."

Sen. Eric Schmitt, R-Glendale, said the tax cut wasn't large enough. He proposed slashing the top personal rate to 4 percent, an amendment that could cost the state treasury $1.6 billion. Schmitt's proposal was pending when the Senate quit working on the bill.

Democrats didn't like any of the options.

"I don't think the governor should have rolled over" and agreed to a tax cut, said Sen. Jamilah Nasheed, D-St. Louis. "This here would cut many social services programs and I don't believe we should be having this discussion."

Sen. Maria Chappelle-Nadal, D-University City, said Kraus should negotiate with senators, not Nixon.

"He's not the 35th senator in this body," she said. "The governor is, I guess, playing puppet-master."

Nixon is pushing to link the tax cut to separate tax credit reform legislation, which has stalled in the Legislature the last four years.

Kraus' bill would do that by implementing the personal tax cut in two stages: an initial cut of 0.25 percentage points tied to revenue growth and school funding, and an additional cut of 0.15 percentage points tied to tax credit reform.

Specifically, the second step would be contingent on the Legislature placing annual caps of $110 million on low-income housing tax credits and $90 million on historic preservation tax credits.

Schmitt objected to linking tax credit changes to the income tax cut. The tax credit reform bills are pending in Schmitt's committee and he has not yet scheduled them for a public hearing. He said in an interview that he was waiting for the House to send over its tax credit bill.

The House took a step in that direction today, giving first-round approval to a wide-ranging bill. For instance, it would phase in a $110 million cap on low-income housing credits by 2019.

But the House plan could run into trouble with fiscal conservatives in the Senate because it would offset any savings with additional spending. In fact, a fiscal note prepared by the staff projects a net cost to the state of $29.5 million by 2017.

For instance, the House bill would set up a new program to encourage "angel" investors to invest in new businesses. It also would set up a credit to encourage air cargo shipments at Lambert-St. Louis International Airport and renew a land assemblage tax credit designed for Paul McKee's NorthSide project in St. Louis.

McKee has drawn about $41 million in tax credits but wants another $48 million, as envisioned when the program was established. Lawsuits have delayed his project, and the land assemblage credit expired last August.

(The Senate tax cut bill is SB509. The House tax credit bill is HB1501.)

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Virginia Young is the Jefferson City bureau chief for the St. Louis Post-Dispatch.

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