State Sen. Will Kraus, R-Lee’s Summit, has been happy to point out that Missourians are set for an income tax cut in 2018, the first in roughly 90 years.
He sponsored the 2014 bill that’s lowering the rate. He says that’s good for taxpayers and that triggering provisions help protect the state budget from taking too big a hit in down times.
Others, however, say the cuts will be a drag on the state’s ability to provide services and balance the budget for several years.
“Are any policy makers paying attention to what is happening with the revenue base?” James B. Moody, who has tracked and analyzed the Missouri budget for decades, wrote as part of a presentation to public officials several months ago.
Here’s how it works. In fiscal year 2017, which ended June 30, Missouri’s general revenues rose $229 million, or 2.6 percent, compared with 2016. That clears the $150 million hurdle to kick in an income tax rate cut from 6 percent to 5.9 percent.
The next time revenues rise $150 million – which could be this year, next year or further down the road – the rate falls to 5.8 percent. This goes on until the rate is at 5.5 percent.
Moody’s group predicted last winter that the first cut would be triggered for 2018, adding, “We believe the tax cuts will take ten or more years to fully kick in, due to low revenue growth that does not trigger the $150 million target (from prior tax cuts or negative growth, or a combination of both).”
And that’s the catch. Each tax cut makes it less likely that revenues will rise enough to trigger the next cut right away.
Still, Moody notes the cumulate effect on the budget. The 2018 tax cut comes in at $145.7 million, and the five-year number is $620.99 million, according to the Economic and Policy Analysis Research Center at the University of Missouri. In a budget with general revenues of $9 billion, that $600 million makes an impact.
Moody also points to two other large factors. First, the state has become heavily dependent on individual income taxes, the tax now being cut. In fiscal year 2016, that accounted for 69.7 percent of general revenues. Twenty-five years earlier, that share was just 48.7 percent. Sales taxes and corporate taxes make up less and less of general revenues.
Second is what Moody calls the “shocking” drop in corporate income taxes in fiscal 2016 – down 35.6 percent, or $155 million. That also came about under a bill sponsored by Kraus, though the projected loss of revenue at the time that bill was passed was just $15 million. That projection turned out to be wrong by a factor of at least 10.
“The error effectively wiped out a large proportion of the corporate income tax,” Moody writes.
Gov. Eric Greitens has said the state budget is in deep trouble, though he has stressed what he calls a spending problem while Moody instead points to intentional, permanent losses in funding.
“Little has been done,” he writes, “to address a fiscal crisis driven by ongoing descending revenues.”
-- Jeff Fox is The Examiner’s business editor and reporter. Reach him at 816-350-6313 or email@example.com. He’s on Twitter @FoxEJC.