GOV. JAY NIXON

Setting up a likely veto showdown, the Republican-led Missouri Legislature gave final approval last week to an income tax cut for millions of individuals and thousands of business owners that Democratic Gov. Jay Nixon warned could imperil funding for public schools and services.

The legislation would cut Missouri’s top individual income tax rate for the first time in nearly a century and make Missouri the third state — following Kansas and Ohio — to enact a special tax break for people who report business income on their personal tax returns.

Estimates released late last week from the Missouri School Boards Association show that the tax cut would put a $1.2 million gap for Texas County schools between the governor’s recommendation for education and their distribution if the tax cut is enacted. The governor wants to appropriate about $17.8 for Texas County schools. With the tax cut, the total would be reduced to about $16.6 million.

Republican legislative leaders have made an income tax cut a priority for the 2014 election year, after failing to rally enough GOP votes to override Nixon’s veto of a tax cut last year. The measure, they said, would spark the economy by helping individuals and businesses.

Nixon indicated he would likely veto the tax cut again, describing it as part of an “all-out attack on public education” that would “drastically slash the income of our state.”

“For our state to succeed in today’s high-tech global economy, we need to our students to be prepared to compete worldwide. But instead of investing in public education, this legislature has chosen to funnel money away from our classrooms and into the pockets of lawyers and lobbyists who need it the least,” Nixon said.

The tax cuts would be phased in over five years, starting in 2017, as long as Missouri’s revenues keep growing. More than 2 million families and individuals could get an income tax cut, with as many as 500,000 of those receiving an extra break because of their businesses.

Legislative researchers put the eventual cost to state revenue at $620 million annually, though other estimates range from $569 million to $800 million.

The legislation would gradually cut Missouri’s top individual income tax rate from 6 percent to 5.5 percent and phase in a new 25 percent deduction for business income reported on personal tax returns. The incremental tax cuts would occur only if state revenues rise by at least $150 million. The bill also would increase a tax deduction for low-income residents and adjust Missouri’s tax brackets based on inflation.

The bill Nixon vetoed last year included a similar reduction in the top individual income tax rate but a larger tax break for businesses and lower-income individuals and a smaller revenue-growth trigger. It was considerably more complex, because it also included provisions that would cut income taxes further if Congress passed a law allowing states to more easily collect sales tax on online purchases. A drafting error also would have imposed a state sales tax on prescription drugs.

Cost estimates for tax cut vary.

The Institute on Taxation and Economic Policy, a Washington-based research group, estimates the measure could reduce Missouri taxes by $569 million. It says people earning between $33,000 and $52,000 annually could get an average tax cut of $57, while the top 1 percent of Missourians — earning more than $391,000 annually — could get an average tax cut of $7,792.

The Missouri Budget Project, a St. Louis-based nonprofit that analyzes fiscal issues with an emphasis on how they affect the poor, estimates the tax cut could eventually total $800 million annually. It said the reduction in the individual income tax rate could affect about 2.7 million taxpayers and the business-income deduction could be claimed by more than 500,000 taxpayers.

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