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Halftime at the State Capitol

It’s a lot quieter at the State Capitol these days.

The Missouri General Assembly reached its traditional halfway point last Friday, adjourning for spring break. Legislators return next Monday, March 24.

As is often the case, very little is certain at this point in the session. Very few bills have made it Governor Nixon’s desk. There are many bills, with many “moving parts”, many ideas still to explore, and many priorities still unfulfilled.

While it’s time to exhale for the week, it’s also time to survey what the legislature has done, has still to do, and what it probably won’t do.

Tax cuts and policy

Frustratingly to us at Associated Industries and indeed among the entire business community in the state, it increasingly appears a tax cut for businesses or individuals is not in the cards for this session. Legislative pundits always warn that important, complicated and politically polarizing legislation rarely gets finished in these sessions just before elections, and this year is no different.

Let’s take a look at the landscape of tax legislation and the possibilities that still loom.

Associated Industries of Missouri has thrown its support behind House Bill 1253, sponsored by Rep. T.J. Berry (R-Kearney). The bill would reduce Missouri’s corporation income tax rate beginning in the 2014 tax year if net individual and corporation income tax revenues are at least at fiscal year 2012 levels. Over five years of growth, the corporation income tax rate would be cut in half. The bill also provides a 10-50 percent business income tax deduction over the same period, subject to the same conditions as the corporation income tax rate cut.

For both cuts, if an employer has an average payroll of at least 150 percent of average county wage, a 50 percent tax cut is immediate.

The bill currently contains a financial institutions tax reduction and a lower withholding tax threshold for employers.

AIM and TRIM support this bill as it provides equal tax benefit for all Missouri employer, regardless of size or type of organization and helps existing employers as it increases our ability to compete for new employers and the jobs they provide.

The bill sailed through the House of Representatives, although it did not draw a veto proof majority. House Bill 1253 is now in the Senate. It faces a hearing in the Senate Ways and Means Committee, which is chaired by Sen. Will Kraus (R-Lee’s Summit) who has supported broad-based tax cutting proposals in the past.

Sen. Kraus currently sponsors Senate Bill 509, legislation that started out as a broad-based tax cut, then turned into a vehicle for Governor Nixon’s tax cutting idea that placed unrealistically high hurdles for the state’s economy before any tax cut would go into effect. In his latest effort to move the bill forward, Sen. Kraus stripped all tax cuts out of the bill, so it became a tax credit reform bill.

As the legislature broke last Friday, Sen. Eric Schmitt (R-St. Louis) had used the legislative process to place broad-based tax cutting legislation into the bill once again, before debate was suspended.

Senator Kraus has another piece of tax cutting legislation ready to go (SB 858). It includes a 1 percent individual income rate cut over 10 years of $100 million growth in general revenue, a 50 percent business income tax deduction over five years of general revenue growth and it increases the personal exemption by $1,000 for those making less than $20,000 a year. It includes no corporation tax cut and includes a referendum clause. The bill had a hearing in Kraus’ committee just before spring break.

The House has been moving several pieces of tax cutting legislation through its chamber.

House Bill 1295 sponsored by Rep. Andrew Koenig (R-St. Louis) phases in a .7 percent cut in individual income tax rates over seven years of $150 million growth over the highest of three previous years. It also phases in a 50 percent business income tax deduction over five years of such growth. It would require 40 percent of the $150 million growth to be deposited in the School District Trust fund, and 20 percent would be appropriated to higher education. Such growth is required before each step of the tax cut.

The bill also includes an additional personal exemption for taxpayers with less than $20,000 of adjusted gross income. But the bill does nothing about corporation income taxes.

House Bill 1295 passed the House along party lines, 106-47. It has now been assigned to the Senate Ways and Means Committee.

House Bill 1268 sponsored by Rep. Paul Curtman (R-Pacific) changes the individual income tax brackets to adjust for inflation. Missouri’s tax brackets have remained the same since 1931…with income more than $9,000 taxes at the same top tax rate of six percent. This bill faces very little opposition. It sailed through the House on a 146-4 vote. It now awaits action by the Senate.

After that, there are literally dozens of bills looking to change the tax code in Missouri, all the way from lowering the state sales tax, to instituting the “Fair Tax”, to charging a flat tax. Most appear doomed to failure.

One important change in tax policy that is on the fast track in the House and Senate would create a sales tax exemption for replacement parts for aircraft. That change is aimed at helping an aircraft repair facility locate near Kansas City International Airport, bringing with it more than 500 jobs.

Human Resources and Employment Law           

After tax law legislation, this area of interest is one of the most important for the state’s employers. In order for the Missouri economy to grow and prosper, our businesses not only need to have a manageable tax structure, but laws that allow business owners to manage their workforce in the most effective way possible.

One important piece of legislation that AIM has been working on for years is contained in Senate Bill 510, sponsored by Sen. Kraus. It redefines “misconduct” and “good cause” for the purposes of disqualification from unemployment benefits.

The bill has passed the Senate, but AIM and several other groups and legislators are waiting to see if the definitions included in the bill pass muster with the U.S. Department of Labor. If not, and the legislature passes the bill, Missouri businesses could lose their unemployment tax credits.  AIM will work to be sure the final bill brings as much sanity to the unemployment law as the federal regulators will allow.

Whistleblower protection bills are also moving in the House and Senate. The House bill is HB 1188…the Senate bill is SB 490. We need to make sure that whistleblowers are protected from retaliation from employers, but that employers are also protected from false claims from employees that are not true “whistleblowers” – those who are not “blowing the whistle” on an illegal act of the employer.  Both bills have advanced from their respective committees and face further negotiation before they reach the finish line.

AIM also supports federally mandated changes to the state’s Shared Work program. Both House and Senate bills are moving quickly through the process.  The program has been extremely valuable to Missouri employers that find themselves in layoff situations and need to retain qualified employees.

There are also some bad bills that AIM will be working against during the second half of the legislative session. HB 1930 and Senate Bill 962 would create a special protected class of employees, accompanied by a special set of lawsuits against employers. The bills also codify the “contributing factor” language that has been a part of Missouri human rights law decisions for the past several years.

Also on AIM’s radar will be Senate Bill 531. That would raise the state minimum wage to $10 an hour. The damage this change in law would do to small businesses is almost immeasurable. But the bill has passed a State Senate committee with Republican votes, so we at AIM will be working against this bill on behalf of employers and employees that value entry level jobs.

AIM will also be watching carefully how President Obama’s mandate to pay more workers overtime pay plays out. At first glance, it appears this policy could do nothing but hurt employers and the U.S. economy.

Economic Development

Economic development legislation again appears to be all over the road, with the biggest sticking point still being reform of tax credits.

The House and Senate for years have argued the best way to reign in a system that is costing the state upwards of $600 million a year. The House last week sent the Senate its latest version of tax credit reform with caps and reductions on low interest housing and historic preservation credits. Differences in the amount of the caps of those programs between the House and the Senate have resulted in the impasse in years’ past.

Legislation that is making headlines, and very little else, are bills that place restrictions on incentives used in the Kansas City area to draw businesses to Kansas or Missouri. Bills sponsored by Sen. Ryan Silvey in the Senate and Speaker of the House Tim Jones in the House offer a “cease fire” in the border war, offering to end Missouri incentives if Kansas will draw theirs back. Kansas so far has shown little evidence they are paying attention to that strategy…while the bills continue to sail along towards passage in the Missouri legislature.

Tort and Legal Issues

The prognosis is not good for legislation that would reinstate caps on non economic damages in Missouri medical malpractice cases and other tort reform measures. Even though tort reform bills are moving in the House and Senate, the bills are not passing with veto-proof majorities. Governor Nixon is likely to veto any bill that include tort reform that is worth passing and, at this time, it does not appear that either the House or Senate will have the votes to override any such veto.

Environmental

The biggest action on this front is in Washington D.C. where the EPA must work with states on regulating the use of coal for electricity production at existing plants. The agency has already blocked the use of coal at any new electricity generating plants. The legislature has passed several resolutions supporting congressional actions to scale back EPA’s authority over state emission standards, but the resolutions hold no force of law.

Healthcare

There does not appear to be any concerted effort by the legislature to expand the Medicaid program in Missouri so far this session. AIM does support expansion as a way to bring efficiencies to the Medicaid system through the use of federal waivers, including the implementation of cost and quality transparency measures. SB 956 sponsored by Sen. Rob Schaaf (R-St. Joseph) seeks to accomplish that transparency.

Government

AIM doesn’t believe it is fair for the governor of Missouri to use the withholding and release of budget funds for political purposes. Two bill making their way through the legislature would allow voters to limit the ability of any governor to do that now or in the future. HJR 72 and SJR 45 are moving along well in the legislative process.

State Budget

There was concern in the Capitol when the House began working on the state budget that the governor and legislature were too far apart in their estimates of state revenues. The legislature predicts growth in the 3 percent range. The governor predicts collections growth in the 5 percent range. So, House budget writers came out with two budgets in one. One uses the more conservative House revenue figures, the other, the governor’s more optimistic numbers.  It will be interesting to see how the budget writers in the House and Senate negotiate over the remaining weeks of the legislative session as they craft the budget that is due to the Governor by May 9.

STAY TUNED FOR MORE UPDATES AS THE LEGISLATIVE SESSION CONTINUES.  If you are not already signed up for our Monday Morning Legislative Webinars, please call our office and get signed up today.  The service is free and is open to all members of Associated Industries of Missouri.

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