Gov. Jay Nixon indicated Friday that he is likely to veto legislation that would cut Missouri's income taxes for businesses and individuals, saying he has serious concerns that it could jeopardize funding for essential government services.
The Democratic governor criticized the tax-cut plan just a day after it won final approval from a Republican-led Legislature that touted it as a means of remaining economically competitive in a battle for businesses with Kansas and other bordering states.
The legislation would phase-in a 50 percent deduction over five years for business income reported on individual income tax returns. It also would gradually cut Missouri's corporate income tax rate nearly in half over and lower the top tax rate for individuals from 6 percent to 5.5 percent over the next decade.
The corporate and individual tax rate reductions would take effect only if annual state revenues continue to grow by at least $100 million over their highest point in the preceding three years.
Legislative researchers have estimated that the measure would reduce Missouri's potential revenues by about $700 million annually when fully implemented. The nonprofit Missouri Budget Project, which analyzes fiscal issues and has opposed the income tax cut, has estimated the eventual cost at more than $800 million annually. Nixon adopted the higher cost estimate in his remarks Friday.
"Taking more than $800 million — literally the equivalent of what you spend on higher education, or literally more than you have for all of corrections or mental health — is not the fiscally responsible approach," Nixon said.
Asked if he would veto the measure, Nixon stopped short of directly saying 'yes' but indicated that was likely.
"At this time, I'm certainly not looking at it with an eye to add it to the structure of Missouri government," the governor said.
Legislators would need a two-thirds majority in both the House and Senate to override a veto and enact the measure. The House vote for the bill Thursday was six votes shy of that threshold, but there were nine members absent. The Senate passed the bill with a veto-proof majority.
"There is a very good chance that we would be successful in overriding a veto," said House Speaker Tim Jones, R-Eureka.
Until now, Nixon has signed every tax cut that the Legislature has sent him, including a phase-out of the state's corporate franchise tax that passed in 2011 and is to be completed by 2016.
"This is a very defining moment for the governor and the majority party," Jones said.
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Sen. Eric Schmitt, the chairman of that chamber's Jobs, Economic Development and Local Government Committee, said he, too, is hopeful that lawmakers could override a veto when they reconvene in September.
"We're at kind of a very important juncture in our state's history," said Schmitt, R-Kirkwood. "You have a number of other states that surround us that are taking bold action on tax reform, and it really is time for us to do it."
The main motivator for many Missouri Republicans is Kansas, which passed a tax-cut plan last year that was projected to reduce state revenues by more than $900 million annually within six years. The Kansas plan cut the top individual income tax rate from 6.45 percent to 4.9 percent, increased standard deductions and exempted the owners of 191,000 partnerships, sole proprietorships and other businesses from state income taxes.
But Kansas Gov. Sam Brownback, a Republican, now is trying to persuade the Republican-led Legislature to cancel a scheduled sales tax cut in order to avoid future budget shortfalls that he says could jeopardize funding for higher education.
Oklahoma also has cut income tax over the past couple decades and is poised to do so again. The Oklahoma House last week gave final approval to a bill that would cut the state's top income tax rate from 5.25 percent to 5 percent in 2015, with a second cut to 4.85 percent set for 2016 if state revenues continue to rise. The tax cut was a priority for Republican Gov. Mary Fallin.