State budget leader questions wisdom of tax breaks

JEFFERSON CITY, Mo. -- Missouri's House budget leader says lawmakers might not have passed changes to corporate tax law if they had known corporate tax revenue would drop about 35 percent the first year those changes were implemented.

At issue is a 2015 bill by Republican Sen. Will Kraus to extend an option for calculating corporate income tax to technology and service-based businesses.

State budget and revenue officials estimated it would cost about $15 million in lost general revenue annually.

Corporate tax revenues dropped more than $155 million the first fiscal year it was implemented, although it's difficult to say whether the sole cause was the 2015 tax law change.

"We had bad information when we passed that bill," House Budget Committee chairman Scott Fitzpatrick said. "I think if we'd have had the correct information, we wouldn't have passed it."

Kraus said the goal of the legislation is to help retain and attract companies headquartered in Missouri that under previous tax law might have faced lower taxes by moving headquarters out of state.

He questioned the role his legislation played in the corporate income tax drop.

"I don't know that we can say that all of the decline in the corporate revenues comes from" that measure, Kraus said. "There's a myriad of things that you can look at that impact that."

Democratic Auditor Nicole Galloway cited the legislation as an example of poor budget projections while announcing plans to review policy decisions contributing to ongoing budget problems.

"That's not acceptable," Galloway said earlier this month. "Policymakers must be accountable for their decisions."

Republican Gov. Eric Greitens, who took office in January, has cut about $146 million to balance this year's budget because of lower-than-projected revenues.

That's on top of about $200 million cut by Democratic Gov. Jay Nixon before he left office.

Weak revenue growth, including the hit to corporate taxes, and increasing Medicaid costs seem likely to affect next year's budget, too.

Greitens proposed cutting in-home and nursing care services, although he later asked lawmakers to soften the blow.

Fitzpatrick is proposing to end a tax break for low-income seniors and disabled renters to address budget holes.

The lost corporate revenue is only part of the state's overall $27 billion budget. But unexpected expenses add up.

The 2015 corporate tax law received bipartisan support when it passed. Nixon, who signed the measure, had said it clarified tax law and leveled the playing field for technology and service-based businesses by granting them a tax option that existed for some other business sectors.

But Nixon warned its potential cost could lead to budget cuts.

It's unclear whether lawmakers can repeal the law. Asked whether he supports undoing the change, Fitzpatrick raised concerns doing so could be interpreted as an unconstitutional tax hike. Tax increases of more than about $95 million can occur only by a vote of the people.

Mistakes in financial estimates in the past also have strained state finances.

Lawmakers in 1999 passed a prescription drug tax credit for seniors that was projected to cost $20 million annually, but that ended up costing more than $85 million.

Lawmakers repealed the prescription drug program in September 2001 and replaced it with a new one for low-income seniors that since has expired.