"Fiscal cliff" could lead to less revenue for Missouri

By Brendan Cullerton

(MDN News) -- How the federal government handles the upcoming "fiscal cliff" scenario could have major implications for Missouri revenue.

Without action by the federal government, the tax cuts of former President George W. Bush will expire on Jan. 1, 2013. This expiration would raise the federal income tax rate if Congress cannot come to an agreement before the new year.

Missouri allows a six percent tax deduction on state income taxes for any federal taxes paid, with a limit of $5,000. If people have to pay more in federal taxes because of higher tax rates, then the state tax deduction could be higher, costing Missouri revenue.

Legislators agreed that if the state revenue fell, education funding would take the biggest hit.

"It could be a significant number," said Sen. Rob Schaaf, R-St. Joseph. "I mean 6 percent of a large number can be a very large number."

Rep. Chris Kelly, D-Columbia, said Missouri is one of few states that allow such a deduction, and that puts the state at a disadvantage.

State budget director Linda Luebbering said other factors, like an increase in state gross domestic income, could offset any revenue loss caused by a rise in federal  income tax.

Ballot Initiative would Limit State Revenue, Trigger Refunds

A ballot initiative in the Missouri Senate, SJR 5, would limit state revenues by requiring state refunds should revenue growth exceed 5% or more should it pass the legislature and be approved by voters. Should that happen, 9 1/2% of state revenues in excess of the preceding year's state revenues would be refunded to taxpayers. This is in addition to the revenue growth restrictions of the Hancock Amendment passed by voters in 1980.

The upside of this initiative is that more money would return to the hands of taxpayers should state revenues permit. The downside is that schools which are dealing with financial issues like Northeast Nodaway would not get as much revenue increases as they would have otherwise and counties and cities would not get as much money either. This means that local entities would be more likely to pass on increased costs to the taxpayers in the form of higher taxes.