For nearly three months, our leaders in elementary and secondary and higher education have been concerned about cuts to funding. They have been told they would lose funding if the legislature overrides Gov. Nixon’s veto of our tax cut bill. In fact, the Governor withheld increased money that was appropriated by the legislature for education. We ask our education leaders to examine the real facts in a reasonable manner.
Opponents have claimed education would suffer a loss if the federal Marketplace Fairness Act passes Congress because of an extra one-half percent reduction in personal income tax rates. Opponents claim this tax cut would be retroactive and allow taxpayers refunds for three previous tax years, quadrupling the cost of the rate cut to $1.2 billion. This argument simply does not pass the “reasonableness test” when you consider everything that would have to happen to cause the enormous revenue loss predicted by those opposed to our tax cut plan. ALL of the following would have to happen for the state to lose $1.2 billion in tax revenue because of this cut:
1. Marketplace Fairness Act must pass Congress and be signed into law by President Obama. Although the U.S. Senate has passed the bill, the U.S. House is not expected to pass the legislation, primarily over concerns this would be a tax increase for consumers that are not currently paying sales taxes on some internet sales. Congressional leaders we have talked to are not optimistic the measure will pass at all, and certainly not anytime soon; and,
2. The Missouri Department of Revenue (which is under authority of the Governor) must issue an Emergency Rule changing the rate and tax tables and allowing taxpayers to seek refunds for the previous three years. The DOR would also have to file a concurrent Proposed Rule that would be subject to review by the Joint Committee on Administrative Rules which has the power to review rules that are not consistent with the Missouri Constitution or statutes. Emergency Rules are allowed only if certain criteria are met, including:
The Department of Revenue must find an immediate danger to the public health, safety or welfare requiring emergency action; or,
The rule is necessary to preserve a compelling governmental interest that requires an early effective date; and,
The DOR follows procedures which comply with the Missouri and United States Constitutions; and,
3. ALL 2.8 million Missouri taxpayers must file amended returns for the previous three years, resulting in 8.4 million amended returns. It is very likely many taxpayers will not file the required amended returns and will not be entitled to any refund. The amended returns and the refund requests made by these taxpayers would be subject to review and approval by the Missouri Department of Revenue. Based on our experience with other tax issues, the DOR would likely challenge the authority of taxpayers to obtain these refunds and the refunds would be delayed while the courts and Administrative Hearing Commission consider whether the refunds are allowed under the Missouri Constitution, which prohibits passage of retroactive laws; and,
4. The DOR would need to process 11.2 million returns when they only process 2.8 million in a normal tax year. While not impossible, the ability of the DOR to process this volume of returns in a timely manner is questionable; and,
5. The $1.2 billion loss assumes Missouri would collect NO additional revenue from the sales and use taxes on sales made to Missouri residents over the Internet as authorized by the federal Marketplace Fairness Act. If any revenue is collected, it would help offset the cost of this tax cut.
As you can see, even if you disagree with our argument and belief that retrospective application of the tax rate cut would be unconstitutional, there are MANY factors that must be satisfied to cause the $1.2 billion loss in state revenue opponents argue would ensue if the legislature overrides the veto of HB 253. Because the loss of revenue is barely plausible, we question the need for withholding any of the budget moneys appropriated for education and other vital state services. The state ended the fiscal year with a $339 million surplus. Only $50 million of this amount will be needed to finance the tax cut, and only $200 million in the unlikely event the federal Marketplace Fairness Act becomes law. Even with the tax cut, Missouri will still enjoy $140 – $289 million in surplus revenues that may be used to fund existing appropriations for elementary and secondary and higher education, as well as funding other vital state services.
CONSIDER THE ALTERNATIVE: If no action is taken and the veto is allowed to stand, Missouri will lose revenue each year as businesses gradually migrate to other states with more favorable tax laws. We ask opponents how they plan to make up that loss of state revenue? If we do nothing, either the state budget suffers or taxes must be increased. Something to consider before supporting the veto of this quality legislation.
For more real facts on the legislation, please visit the “Taxpayers Research Institute of Missouri” tab on our website at www.aimo.com.
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