Wealthy would collect windfalls under Senate Bill 509, while average middle-class family would get only $32

April 29, 2014
Springfield R-XII school board comes out against unaffordable tax bill that would give majority of benefits to top 7 percent of taxpayers
Springfield, MO

Gov. Jay Nixon today raised questions about the legislature’s priorities in passing an unaffordable tax bill that would allow profitable LLCs and corporate partnerships to take advantage of generous tax breaks, while giving the average working family a tax cut of only $32 a year. Citing Senate Bill 509’s harmful impact on public education, the Springfield R-XII Board of Education last week passed a resolution calling on the legislature to support Gov. Nixon’s expected veto of the bill.

“A bill that takes money out of our classrooms to give special breaks to the wealthy raises serious questions about this legislature’s priorities,” Gov. Nixon said. “While Senate Bill 509 would result in harmful cuts to our K-12 schools, the average family would have to wait until 2022 to get a tax cut of just $32. Missouri families are not willing to trade crowded classrooms, higher tuition and fewer teachers for what amounts to an oil change. That’s why once again I am calling on the General Assembly to abandon this unaffordable, unfair and dangerous legislation and work together on a more responsible approach.”

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 casino owners – that are organized as LLCs or corporate partnerships.

In fact, 52 percent of the tax savings Senate Bill 509 would generate would be collected by the top seven percent of taxpayers. For example, under Senate Bill 509, the operator of a casino with $1 million in business income could write off $250,000 of income and receive a tax cut worth $18,200. And Senate Bill 509 sets no limit to these windfalls, so the more income that casino makes, the bigger the tax cut its owner would receive. 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. 

In February, the right-leaning Tax Foundation wrote that “special carve-outs like this simply encourage individuals to structure themselves as pass-through entities for tax reasons, even if there is no economic or business reason for doing so.” 

Last week, the bill review process identified a 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.

Even 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. K-12 education is heavily dependent on general revenue, so public schools are affected disproportionately by measures that reduce the general revenue budget, such as Senate Bill 509. 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, including more than $6.5 million from Springfield Public Schools, or the equivalent of 130 classroom teachers.

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 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.