State lawmakers aren’t counting on tax revenues spiking anytime in the near future to balance the state’s bottom line.
This week, House Budget Committee Chairman Scott Fitzpatrick said $500 million worth of cuts would have to be made in the current fiscal year to finance mandatory funding for state agencies. Former Governor Jay Nixon has already restricted spending by about $200 million for the year.
Yet legislators are still looking at a proposal to do away with corporate income taxes.
Republican Senator Will Kraus of Lee’s Summit says his plan wouldn’t hurt the state’s finances because those taxes only account for three-percent of revenues. He also thinks the measure would be a boon for business and jobs.
“We can market just like New York does that we are a tax free zone for corporations” said Kraus. “That is a major way for us to market Missouri, and bring more jobs back to Missouri.”
Jim Moody with the Civic Council of Greater Kansas City argued the fact that the corporate tax is a small portion of revenues is part of the problem with eliminating them.
During a Tuesday hearing in front of the Senate Ways and Means Committee, which Kraus chairs, he noted that over the years, the state has become heavily reliant on individual income taxes while the percent of revenues derived from corporate taxes has dwindled to less than half of what it was in the early 1990’s.
Mike Sutherland with the Missouri Budget Project also testified at the hearing. He said Missouri’s corporate income tax is already among the lowest in the nation. “We are ranked 44th among the 50 states. And five states don’t have corporate income tax. They have other types of taxes to make up for that. So I would say, from that aspect, we are pretty competitive.”
Opponents also say eliminating the tax would hurt the state’s bottom line because overall tax collections are already falling short of projections.
Otto Fajen with the Missouri National Education Association raised concerns that doing away with the corporate tax would hurt an already underfunded school system.
“We’re are very concerned that you all (legislature) and the state are really facing a profound challenge in being able to meet those needs” said Fajen. “The previous general assembly enacted legislation to reduce the overall investment (in education).”
Only one business group spoke in favor of the proposal which would phase out the state’s corporate income tax over three years.
Ray McCarty with Associated Industries of Missouri said the proposal makes sense because the tax elimination would be done by statute. “If the state ever decided that they wanted to tax corporations again, they could simply go back in and use the same framework” McCarty said.
According to the state’s non-partisan Committee on Legislative Research, the loss in revenue from phasing out the corporate tax would be much higher than Senator Kraus’ figure of $280 million over three years.
The committee says the state would be out about $180 million in the first year, $351 million the second year and $516 in the third year.