Nixon on veto: SB 509 is unfair, unaffordable, and dangerous

(From Gov. Jay Nixon)

During a visit to the Gateway/Hubert Wheeler School for the Disabled in St. Louis today, Gov. Jay Nixon announced that he would veto Senate Bill 509, calling the bill an unaffordable, unfair and dangerous scheme that would drain funding from public services and do nothing to help working families.

“Senate Bill 509 is 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,” Gov. Nixon said. “Instead of helping middle-class families get ahead, the money this bill would drain from our classrooms and college campuses would go to line the pockets of lawyers, lobbyists and other wealthy individuals – while an average family would get just 32 bucks. Weakening support for vital public services like those provided here at Hubert Wheeler in order to shower windfalls on the well-heeled is wrong and would take our state backward.”

According to the fiscal estimate produced by the legislature, Senate Bill 509 would reduce state revenues by more than $620 million annually when fully implemented. Data released by the Missouri School Boards Association showed that Senate Bill 509 would reduce state support for K-12 school districts by $223 million annually.

Senate Bill 509 also contains a dangerous provision that would increase the bill’s cost by $4.8 billion annually by eliminating all income taxes on Missourians with greater than $9,000 in income. The provision would eliminate 97 percent of all individual income tax collections and wipe out 65 percent of the state’s general revenue budget.

“Now there are legitimate disagreements to be had about what policies our state should pursue,” Gov. Nixon said. “But when it comes to our most basic, fundamental obligation to provide vulnerable children a fair shot to live up to their God-given potential, that’s just not up for debate. This fiscally irresponsible legislation would permanently undermine support for education and the vital public services that strengthen our economy and support our quality of life, and it cannot become law.”

Senate Bill 509 includes a 25 percent tax deduction for what is called “pass-through” business-income. This type of income is often reported by wealthier individuals, such as lawyers, lobbyists and even gambling establishments organized as LLCsor corporate partnerships.

In fact, 52 percent of the tax savings from Senate Bill 509 would go to the top seven percent of taxpayers. For example, under Senate Bill 509, the owner of a casino with $1 million in business income could write off $250,000 of income and receive a tax cut worth more than $18,000. By contrast, a family making Missouri’s median income of $44,000 a year would receive a tax cut of only $32 when the legislation is fully implemented in 2022.

The business income exemption in the bill would also result in workers paying higher taxes than their employer, even if the worker and the employer reported exactly the same taxable income. For example, under this bill an owner of a pass-through business with $40,000 in Missouri adjusted gross income would pay $704 in tax, while their employee reporting the same amount would pay $1,123 in tax.

Instead of the unaffordable approach taken by Senate Bill 509, Gov. Nixon has laid out a proposal to fully fund the K-12 foundation formula and give working families a responsible tax cut by reining in wasteful tax credit expenditures. Gov. Nixon has also signed four tax cuts as Governor. In 2009, he signed legislation to phase out state income taxes on military pensions. In 2011, the Governor signed Senate Bill 19 to phase out Missouri’s corporate franchise tax, which will save Missouri businesses $70 million this year alone. In 2012, Gov. Nixon signed a targeted tax deduction for small businesses that create jobs. And last year, Gov. Nixon signed House Bill 128, which benefits Missouri manufacturers with significant out-of-state sales.

According to the Congressional Quarterly’s State Rankings 2013, Missouri has the 6th lowest per capita taxes in the nation. In addition, a report from the Center for Business and Economic Research at Ball State University shows Missouri as one of only five states to receive an ‘A’ grade for its tax climate and economic diversity, and the only state among its neighbors to receive the top score in these areas.

Last year, employment in Missouri grew faster than our neighboring states of Kansas, Tennessee, Oklahoma, Kentucky, Illinois, Nebraska, and Arkansas, and Missouri has been the fastest-growing state in the nation for technology job growth for two years running. Missouri has also led the rebirth of the American auto industry and attracted historic investments in biosciences, information technology, and advanced manufacturing throughout state.

A link to the breakdown of district funding levels if Senate Bill 509 becomes law is available here. The data was generated using the same methodology used by education groups in assessing the impact of House Bill 253 last year.