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Tag Archives: Budget shortfalls

A portrait of willful ignorance

14 Tuesday Mar 2017

Posted by willykay in Missouri General Assembly, Uncategorized

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Budget shortfalls, Corporate incentives, Fiscal Responsibility, Nicole Galloway, Supply side economics, tax cuts, Tax policy, Voodoo economics, Will Kraus

We all know that newbie Governor Greitens has been trying to deal with a dire budget situation occaisoned by a corporate tax cut enacted in 2015 that ended up slashing incoming revenue by $155 million. Chickens are coming home to roost, you reap what you sow & etc., etc.

State Republicans, however, who were adamant that the corporate tax cut wouldn’t hurt a bit and was, in fact, necessary to stimulate growth, are now pretending that they didn’t know how distressed chickens behave, or, alternatively, that they just didn’t know what they were sowing:

“We had bad information when we passed that bill,” House Budget Committee Chairman Scott Fitzpatrick told The Associated Press. “I think if we’d have had the correct information, we wouldn’t have passed it.”

But somehow Democrats in the legislature knew that no good would come from fact-free tax cutting – and they tried to tell the GOP ideologues in the Assembly:

Democratic senators who spoke against the bill said they worried it would threaten Missouri’s excellent credit rating and reduce state funds for education.

“We can’t afford to do a tax cut at this level,” said Senator Jolie Justus, speaking on the Senate floor, citing services that she said were already severely underfunded. “We are on the wrong track.”

Democratic Governor Nixon also knew. He called the bill “ill-conceived,” and correctly vetoed it. But nobody on the Republican side was listening. The determined Republican legislative majority covered their ears and passed the tax-cut over Nixon’s veto.

It’s just one more case of willful ideologuing on the part of Republican politicians who ought to have been governing. It’s not like there hasn’t been lots of examples proving that radical tax cuts don’t really summon the elusive business fairy – Brownback’s failed Kansas economic experiment is a potent example right next door. And there’s lots more out there – Louisiana, Wisconsin, etc. are finding out that the GOP tax-cutting mantra doesn’t readily translate into workable policy.

Research tells us that corporate tax incentives may provide a windfall for CEOs of existing businesses in the state, but they rarely contribute to increased statewide prosperity. A new report even suggests that tax based incentives are not only ineffective, but actually cost more than they contribute to the economy:

Less flashy but more important, a February report from the Upjohn Institute for Employment Research suggests, are the run-of-the-mill economic development incentives built into state law across the country and designed either to attract companies, to keep them in place, or to get them to add positions. In 2015, incentives for new or expanding export-based industries (i.e., manufacturing, tech, media, any company that sells its goods or services beyond the local economy) offset average state and local business taxes by 30 percent, costing the U.S. $45 billion.

The report, based on a database of 26 years of incentives in 33 states, affirms the consensus that these tax breaks—which have tripled since 1990, when the database begins keeping track—don’t do much to convince companies to move. Plotting the effects of incentives and taxes on state GDP growth, the study concludes their effects are “always statistically insignificant … the maximum possible effects of incentives on increasing growth … are towards the lower end of the range of estimates in the previous literature.”

And while some GOP pols in Jefferson City are pretending that they just didn’t understand that actions have consequences, don’t expect a change in their direction. In December, that irrepressible tax-cutter, Senator Will Krauss (R-8), the Senate sponsor of the 2015 bill, let us know that that he, like most GOPers, will never, ever learn the lessons of the past:

Republican state Sen. Will Kraus told The Associated Press that Trump’s support for reducing such taxes could open the door to axing corporate income taxes on the state level. Kraus will introduce a bill during the next legislative session beginning in January that would phase out the state’s current 6.25 percent corporate income tax.

“I see an opportunity for us to be able to market Missouri as a corporate tax-free state,” Kraus said. He called the measure a “job-creation” bill.

Under Kraus’ bill, the tax would drop to 4 percent in 2017 and 2 percent in 2018. It would be eliminated in 2019.

So … is there any hope? Maybe. State Auditor Michelle Galloway is going to begin “what she calls a ‘budget integrity series,’ a slew of audits and financial reviews to better understand how the budget shortfall occurred … she hopes to better understand the difference between expected fiscal effects when tax breaks are offered and their actual ramifications on the state budget.” Just what the doctor ordered. But unless Galloway’s findings confirm the prior beliefs of our GOP pols, it may be too much to expect them to pay attention.

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