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An anti-tax, Republican super majority in the Missouri Legislature claimed victory yesterday in a year-long battle with Gov. Jay Nixon over taxes by voting to override Nixon’s veto of a $620 million income tax cut. This comes one year after Gov. Nixon’s veto was enough to stop a similar measure from becoming law.
The new law, Senate Bill 509, will gradually drop the top income tax rate from 6 to 5.5 percent and create a new tax break for “pass through” business income. Besides blowing a hole in the state’s budget, the tax cut will also make Missouri’s already-unfair tax system even worse: a Missouri Budget Project report, using data from our partners at the Institute on Taxation and Economic Policy (ITEP), found that the poorest 20 percent of Missourians will see a tax cut averaging just $6, while the top one percent of families will enjoy an average tax cut of $7,792.
Throughout this bruising battle, Missouri lawmakers made it clear that similar income tax cuts enacted by neighboring Kansas in 2012 and 2013 were a motivating factor in dropping Missouri’s tax rates. Clearly these lawmakers did not read news stories last week when Moody’s lowered Kansas’s bond rating due, in part, to the fiscal crunch created by that state’s income tax cuts.
But it shouldn’t take a bond downgrade to convince lawmakers that unfunded tax cuts can have a devastating effect on a state’s economy. What has just happened in Missouri and recently in Kansas is a symptom of a larger problem. Anti-tax proponents across the country are pushing a message that taxes are inherently bad without regard to what less revenue does to basic public services, from infrastructure to education. This fallacious messaging has allowed a number of states in the last few years to push through tax cuts that disproportionately benefit the wealthy.
For many states, it’s too soon to tell the long-term impact. But it is likely that other states could experience the same negative consequences as Kansas, including cuts in public services and downgraded bond ratings. Just last week, North Carolina lawmakers (who enacted a massive tax cut package last year) got word that revenues are coming in more than $445 million below projection in the current fiscal year and are likely to be down next year as well thanks in large part to under valuing the impact of their regressive tax cuts.
Fortunately, Missouri tax cuts won’t begin to phase in until 2017, and even then are contingent on future economic growth. But in the long run, Governor Nixon’s bleak assessment of the bill’s impact—that it’s an “unfair, unaffordable and dangerous scheme that would defund our schools, weaken our economy, and destabilize the strong foundation of fiscal discipline that we’ve worked so long and hard to build” may prove prophetic.