CHICAGO – Missouri Gov. Jay Nixon vetoed a gradual $700 million $800 million tax cut approved by the Republican-controlled Legislature, calling the plan irresponsible and harmful to the state’s budget and economy.
“With a price tag of $800 million, this legislation is an ill-conceived, fiscally irresponsible experiment that would hurt our economy and jeopardize funding for education and other vital public services,” the Democratic governor said in a statement announcing his veto of House Bill 253.
The cuts “would undermine the very foundation of our long-term economic growth and our strongest economic development tool-our educational system,” he warned.
Under the legislation, the top tax rate for individuals would drop to 5.5% from 6% over the next 10 years and corporate income tax rates would be cut almost by one half to 3.25% from 6.25%. The changes, however, hinge on annual growth in state revenues meeting a minimum threshold of $100 million. The tax on business income reported on individual tax returns would be slashed in half over five years.
State legislative supporters of the measure warned the cuts were necessary to compete with border states like Kansas. Republicans blasted the governor’s action and vowed to attempt an override when lawmakers return in September.
Nixon argued that various state and independent reports show the state’s tax burden ranks low when compared to other states and is the lowest per capita of surrounding states. Nixon also raised concerns of a provision in the bill that would repeal a tax exemption on prescription medicines resulting in a $200 million increase.
Missouri lawmakers adjourned last month after wrapping up a session that saw passage of a $25 billion fiscal 2014 operating budget along with the tax package but no action on two major bond packages to fund transportation and infrastructure projects.
Ahead of a GO sale last year, all three credit rating agencies affirmed the state’s triple-A ratings. Standard & Poor’s in its review cited as credit strengths the state’s strong reserves, moderate debt burden, and quick action to cut spending amid a sluggish recovery.
An ongoing challenge remains its limited ability to raise revenues and a requirement that revenue in excess of personal income growth be rebated to taxpayers under the Hancock Amendment, Moody’s Investors Service said.
The state has $4.4 billion of tax-supported debt but only 10% is backed by its full-faith-and-credit pledge. About 70% of state-related debt was issued through the highway commission and is repaid with transportation revenue.