Missouri lawmakers have taken notice of massive tax cuts in Kansas, and they plan to respond with some cuts of their own.
Sen. Eric Schmitt, a Glendale Republican and chairman of the Senate Jobs, Economic Development and Local Government Committee, said he plans to push legislation that would cut business taxes by 50 percent over the course of five years.
"This legislation will put Missouri on the map, and send a signal to businesses large and small that we are open for business and the Show-Me State is fertile ground for new jobs, expansion and investment," Schmitt said Wednesday.
The bill would cut the state's corporate tax from its current rate of 6.25 percent to 3.12 percent over the course of five years, which according to legislative researchers could reduce state revenues by $153 million when it is fully phased in.
Additionally, the bill would create a tax deduction of business income from individual income tax, beginning at 10 percent in 2013 and growing to 50 percent by 2017. It would apply to all businesses, regardless of size. A previous version of the bill called for only a 25 percent deduction, which estimates said could reduce state revenue by $83.5 million to $146.2 million annually.
That previous version of the bill didn't gain enough traction to pass last year, but Schmitt expects that to change this year, thanks to Kansas. In addition, Republicans now hold supermajorities in both Missouri houses after the recent election.
"For Missouri to be competitive, we have to pay attention to what's going on around us," Schmitt said. "Kansas took action, and we have to respond."
Not everyone is sold on the idea.
Amy Blouin, executive director of the liberal Missouri Budget Project, said to truly build Missouri's economy, the state must invest in the services that help companies and their employees thrive. That includes quality K-12 and higher education and reliable roads and bridges -- investments where Blouin said Missouri is now falling behind what other states can offer.
"Missouri already has one of the lowest effective corporate tax rates in the nation, combined with some of the most generous tax credit programs, and these policies are clearly not generating more jobs," Blouin said. "We can ill afford additional tax cuts that will further impair our ability to compete with other states on critical employee readiness and quality of life measures."
But Schmitt said the state stands to lose more revenue if businesses start relocating to Kansas.
"There is a lot of uncertainty about what sort of impact Kansas' tax cuts will have on Missouri," Schmitt said. "We have to acknowledge that what Kansas has done will have an impact on our ability to attract and retain employers and jobs, which would have a bigger impact on revenue than tax cuts."
House Speaker Tim Jones, a Eureka Republican, said he was supportive of Schmitt's legislation as one piece of an economic development package aimed at boosting jobs in Missouri.
"The Kansas-Missouri border war has been going on for decades, going back to when it was a real war. Now it's become an economic war, and it's just as serious," Jones said. "The House's agenda has to include tax cuts and economic development tools that we've been talking about for years."
According to an analysis released by The Associated Press earlier this year, Missouri and Kansas have combined spent more than $750 million on tax incentives and bonds over the past five years attempting to lure businesses across the state line in the Kansas City area.
In May, Kansas Gov. Sam Brownback signed legislation slashing state income taxes by roughly $4.5 billion over five years. Legislative researchers estimate the Kansas tax cuts will create a budget shortfall of nearly $2.5 billion over the next five years.
Jones said he doesn't think Kansas' budget is sustainable long term, which means Missouri doesn't have to fully follow the Sunflower State's lead.
"But we have to do something," he said.
In addition to tax cuts, Jones said lawmakers hope to create tax incentives designed to draw amateur sporting events to the state, lure investors to Missouri companies and spur construction of data centers.
To offset the costs of these incentives and tax cuts, Jones said legislators will have to take another swing at overhauling Missouri's tax credit system, an idea that has run into gridlock for several years.
Missouri businesses and residents cashed in $629.3 million worth of tax credits in the last fiscal year, roughly one-twelfth of Missouri's general tax revenue.
Jones said reducing the amount Missouri pays out for these programs would free up money for other things.
"I think we are to a point where we can make progress on tax credit reform," Jones said. "People forget that we were close last year. We almost got a bill across the finish line."
Lawmakers will also explore closing tax loopholes and improving the state's ability to collect sales tax from online purchases, Jones said.
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