®RM75¯COL448.PRB - A Missouri Budget Conundrum
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Missouri's legislature and state local governments are facing a potential conundrum involving how to fund government services in light of Missouri Republican proposals to cut taxes and Donald Trump's tariffs.
The conundrum is how to replace lost tax collections to continue funding state and local government services.
Part of the conundrum arises from the vision of Republicans controlling state government to reduce state taxes with the argument that lower taxes will help stimulate the economy and thus raise tax revenue.
The largest state tax reduction proposal comes Gov. Mike Kehoe's proposal for a plan to eventually eliminate the state individual income tax.
Legislative staff estimate a similar Senate proposal to phase in a lower the income tax eventually could cut tax collections by $8 billion per year.
A House bill sponsored by a Republican would repeal the tax on capital gains which involves profits from the sale of property or financial investments.
Legislative staff estimate that proposal ultimately could result in a $300 million loss in the first year of implementation and subsequent reductions in the next two years
On the other side, many Republicans argue that lower tax rates would generate an economic boost that would enhance tax revenue.
But, the original staff fiscal note estimates for income tax reductions do not include potential tax revenue gains from economic benefits generated by the tax cut.
Realize that the current state's budget is slightly more than $14 billion in state-collected funds.
So, a potential revenue cut of $8 billion could challenge legislators to fund the state's budget for education, health care and other social services in future years.
That would leave only a sales tax increase to replace the lost state taxes and proposed in some of the income-tax plans.
But a sales tax increase likely could trigger tremendous opposition from businesses, merchants and consumers about raising what consumers must pay for purchases.
Adding to Missouri's budget conundrum is Pres. Donald Trump's proposed imposition of tariffs on imports from foreign countries.
A tariff essentially is a tax on foreign imports that likely gets passed on to U.S. purchasers.
The tariff on Canada has an impact on Missouri because Canada is a major source for oil used to produce fuel for motor vehicles.
On a state level, higher fuel prices could increase costs for the Transportation Department which requires a significant amount of motor fuel to maintain and improve our state highways.
It also could boost costs for the Missouri State Highway Patrol whose troopers spend so much time driving the highways to protect our safety.
Beyond that, of course, that higher fuel cost would include local-government costs for school buses and ambulance services, fire districts and local police purchasing motor fuel for their tasks.
I better understood this issue when I filled the tanks of our cars in anticipation of Trump's tariff.
The gas price at our local service station had already been raised before the tariff took effect.
While Trump has paused his proposed tariff on Canada and Missouri's legislature has yet to approve the deep tax cuts, the issue continues to loom for state and local government services.
As an aside, I owe a debt of gratitude to Missouri Independent's Rudi Keller who inspired me to resume my Missouri Capitol Perspective columns.
As one of my statehouse students years ago, Rudi was a budget expert which he demonstrated advising me about this column.
[Phill Brooks has been a Missouri statehouse reporter since 1970, making him dean of the statehouse press corps. He is the statehouse correspondent for KMOX Radio, director of MDN and an emeritus faculty member of the Missouri School of Journalism. He has covered every governor since the late Warren Hearnes.]
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