Good grief. This actually appeared in a press release by the governor of Missouri regarding a tax reform legislation:
A fiscal analysis performed by the Office of Administration, Division of Budget and Planning, shows that the provision eliminating the income tax on Missourians with incomes greater than $9,000 would reduce state general revenue by approximately $4.8 billion annually, eliminating 97 percent of all individual income tax collections and wiping out 65 percent of the state’s general revenue budget.
(Emphasis in original.) The 97 percent and 65 percent figures are not typos. The Missouri governor wants people to believe that there’s a serious state income tax plan that would eliminate all but 3% of individual income tax collections. This is unhinged. This press release is simply a set of economic forecasts based on a dishonest interpretation of a tax reform bill that passed the Missouri House and Senate, coupled with some unsubtle spin to help the Democratic candidates come November.
Currently, Missouri’s income tax is imposed at nine rates on each of the first $9,000 of taxable income, and then taxed at 6 percent on the income above $9,000.
The legislation in question, Senate Bill 509, would reduce the tax on income above $9,000 from 6 percent to 5.9 percent if revenue in the most recent fiscal year exceeds any of the previous three years’ revenue by more than $150 million, then down to 5.8 in the next year after revenue exceeds any of that of the three prior years by $150 million, and so forth down to 5.5 percent. It’s sort of the Laffer Curve in applied form: tax rates only go down if revenue goes up. A similar provision was included in last year’s House Bill 253, which passed the House and Senate last year, and was vetoed by Governor Jay Nixon.
Under the bill, if the top rate were reduced to 5.5 percent, it would match the rate currently imposed on income between $8,001 and $9,000. That’s where the absurdity begins with the Nixon administration. Here’s the relevant part of the bill:
(4) The director of the department of revenue shall, by rule, adjust the tax tables under subsection 1 of this section to effectuate the provisions of this subsection. The bracket for income subject to the top rate of tax shall be eliminated once the top rate of tax has been reduced to five and one-half of a percent.
(Emphasis added.) Currently, the department of revenue is required to maintain a table calculating the tax when the taxable income is less than $9,000. The statute (143.021, RSMo) dictates specific rounding requirements and calculations for income falling within $100 increments. Here’s what the table looks like now:
In the current bill, much of this calculation requirement is removed, which would make sense if the top rate was changing from year to year. This quoted section above would direct the department of revenue to change the tables to match the changes in the tax rate. When the tax rate on income above $9,000 falls to 5.5 percent, it would match the rate imposed on taxable income between $8,001 and $9,000. So it’s a straightforward interpretation – there would be no need for the department of revenue to maintain a table with two brackets at 5.5 percent, so take out the “above $9,000” top bracket and make the “above $8,000” bracket the top bracket. Right?
According to the Nixon administration, wrong. They want people to believe that this section – whose primary concern is making sure the tables match the changes in law – would eliminate the tax on income above $9,000. Any income. Meaning the maximum amount of income tax any individual would pay would be $315.
The new Section 143.011.2(4) in Senate Bill 509 provides that once the legislation is fully phased-in, the top tax bracket “shall be eliminated.” Eliminating this top tax bracket would result in a new top tax bracket that applied to taxpayers with Missouri taxable income “Over $8,000 but not over $9,000.” However, there would no longer be a tax bracket for Missourians with incomes over $9,000, thereby eliminating altogether the income tax for such taxpayers.
(Emphasis in original.)
Now, even if one thought this meant that after careful and incremental reductions in the tax rate, the tax imposed would drop off the table, what would be a rational way a governor might bring up this objection? Maybe use some colorful language, perhaps invoking “defcon 1” language about the fear of what would happen if this mistaken language were to become law that would drop the top tax rate from 6% down year by year to 5.5%, and then , should revenues meet expectations each year? But surely one wouldn’t take up the position that this was what was intended, would he?
Don’t be silly. It’s campaign season, and there’s nothing the press will believe the GOP isn’t capable of.
At the governor’s press release, there’s a link to a letter from a Washington University professor named Cheryl Block who takes this tortured interpretation at face value, and concludes:
The last sentence of subsection two, subparagraph four of proposed new section 143.011 provides that the “bracket for income subject to the top rate of tax shall be eliminated once the top rate of tax has been reduced to five and one-half percent”. For tax purposes, the term “bracket” has a technical meaning quite distinct from “rate”. The former, represented by the left-hand column in most tax tables, refers to a specified range of taxable incomes to which a particular tax rate applies. The awkwardly worded language in proposed new subparagraph four uses an event – the moment at which the top tax rate has been reduced to five and one-half percent pursuant to subparagraphs one and two of new subsection two – as a trigger for automatically eliminating the “top bracket”.
Remember, this interpretation is based on a part of a bill that merely requires the department of revenue to keep its tax tables in line with the transition of top tax rates when the top rate goes down, and to eliminate a redundancy once the income tax rates on two brackets are the same. It is not a change in the tax rate itself, much less an elimination of any income tax.
This type of deception ventures into the territory of the professional tax protesters, who present frivolous arguments to claim they don’t owe tax because, for example, when a tax statute defines the “United States” to include other areas like the District of Columbia, Puerto Rico, and Guam, the United States includes only the District of Columbia, Puerto Rico, and Guan, thereby freeing the tax protester living in one of the 50 states of any federal tax obligation. To read this portion of the Missouri bill as a devious backdoor tactic by the GOP to eliminate 97 percent of tax collections, once the “trigger” event happens, is equally disingenuous.
And in the “in for a dime, in for a dollar” category, the administration drew up a fiscal note to add a fig leaf of credibilityness to this argument. It puts out in chart form that under this interpretation of SB 509, revenues from taxes on income over $9,000 would be “$0.0” million dollars.
The bill will likely be vetoed by Governor Nixon before the end of the regular session in May, and this will likely be taken up in a special session in September to try to override the veto. With this being an election year for the legislature, I can only dread the multitude of campaign ads that are going to be based on this reading of the tax bill.