Watch Out Illinois: Missouri Cuts Taxes, Reforms Pensions, Takes First Significant Policy Steps Towards Growth

Posted on: July 31st, 2017

True state-based, political leadership can be hard to find these days. Fortunately, in my home state of Missouri, history is being made that indicates a renewed, fiscally responsible approach to growth. Unfortunately, some are disparaging those steps forward with ill-informed positions.

The stage for this debate was set two years ago when both house chambers showed extraordinary leadership and vision by passing historic income tax reform and then overriding then Gov. Jay Nixon’s veto of the legislation. Senate Bill 509 proved to be the state’s most significant tax reform measure in nearly a century.

The new law set into motion business and personal income tax reductions once the state successfully met specific general revenue gains. Missouri exceeded that level in fiscal year 2017 and hardworking Missourians stand to benefit in the following ways:

* Top personal income tax rates will be reduced .1% each year after net gross revenue collections meet or exceed the $150 million mark until the rate is reduced from 6% to 5.5%.
* Small business income that is filed through individual tax returns will see a 25% deduction phased in over five years after net gross revenue collections meet or exceed the $150 million mark.
* Missourians with an adjusted gross income of less than $20,000 will be able to claim an additional $500 annual tax deduction.
* Taxable income brackets will be adjusted for inflation.

State Treasurer Eric Schmitt, who supported the legislation when he was a state senator, had this to say about the reforms: “Small businesses, which represent 97% of Missouri businesses, have struggled for years to stay open in the midst of burdensome regulation and excessive taxation. By finding new ways to provide relief to those businesses and letting Missourians keep more of their hard-earned money, we can significantly strengthen our economy. For middle class families, tax relief means greater financial empowerment, higher take-home pay and flexibility to address immediate needs.”

But, good fiscal management does not depend on pro-growth tax policies alone. Last year, Missouri’s looming public employee pension fund was on the road to ruin. Fortunately, Missouri state leadership recognized that serious underfunding of state’s pension system poses a long-term threat to its AAA credit rating. In an important first step forward, this month Gov. Eric Greitens signed into law reforms that will help to stabilize the Missouri State Employee Retirement System (MOSERS), a defined-benefit program that is currently underfunded by 36%.

Schmitt recently issued a siren call for pension reform and warned Missouri “don’t be like Illinois” in a letter to state legislators. He referred to the Illinois budget disaster “as an important opportunity to think constructively about the future of our state… Decades of government expansion, budgetary neglect, unaddressed pension liabilities, and passing the buck have left the Illinois state budget in shambles.”

Unfortunately, the St. Louis Post-Dispatch chose to discredit steps that the Show-Me State has taken and calls Schmitt’s comparison to Illinois “meaningless.”

Notwithstanding these claims, many state employees will be pleased to know the new pension law creates an early benefit buyout program that allows many current state employees to qualify for pension benefits in five years, rather than 10. In addition, former state workers will be able to cash in their future pension payments. These changes are far from meaningless and will go far to reduce our state’s pension crisis which currently stands at $15.07 billion total unfunded pension liability.

There is little support for the misinformed claim that Missouri’s economy is as bad as our neighbor to the east. Moody’s recently placed the state on a review list and may downgrade the state’s credit rating to a “junk” status. That action was taken after the passage a 32% tax increase that may ultimately may increase the $251 billion state employee pension deficit.

And, Illinois is losing big as workers vote with their feet to abandon the state’s downward spiral. The Internal Revenue System’s tracking of taxpayer income migrating across state lines shows that between 1992-2015, Illinois lost $45.34 billion in annual gross income (AGI), of which more than $15 billion went to no income tax states. While during that same timeframe, Missouri’s loss $2.9 billion, the $42 billion difference is far from negligible.

Missouri’s tax cuts for small businesses and workers, along with significant measures that will help keep our state employee pension system solvent, are two critical steps towards improving the outlook for Missouri’s economic growth. In fact, the Mercatus Center at George Washington University recently evaluated states’ overall fiscal conditions and Missouri’s ranking went from 20th to 11th place. Compare to Illinois, which which ranks at a solid 49th.

Who knows, my home state may just be positioning itself to be a model for economic expansion that other states can look to in the future.

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