MCC Letter to the Missouri House of Representatives - Taxes versus Healthcare

To: State Representatives

From: Missouri Catholic Conference

Re: HCS HB 444 et. al. – Tax Exemptions on Social Security Benefits and Public Retirement Pensions

Date: February 13, 2007

HCS/HB 444 et. al. proposes to cut taxes on social security benefits and public retirement pensions paid to Missouri’s higher income citizens resulting in a loss of state general revenue totaling $131,120,215 in fiscal year 2008 rising to $138,133,245 by fiscal year 2010, according to the bill’s fiscal note. Amendments have been proposed to include other retirement pensions that could balloon the proposal to several hundred million dollars.

This tax cut is proposed two years after the legislature addressed state budget constraints by making a number of severe funding cuts, most notably completely eliminating Medicaid health coverage for 94,850 Missourians. Medicaid eligibility for working parents was slashed in 2005. A mother with two children can now make no more than $3,504 annually to qualify, which is only 21 percent of the federal poverty level. Health coverage for the working poor has been cut at the same time that fewer businesses are offering health insurance benefits.

The increased revenue the state enjoys this year could be used to restore essential state services like health coverage for the working poor. Or, a tax measure could be considered that creates new opportunities for poor families. But HCS/HB 444 does none of these things. It proposes a tax cut that will bestow the overwhelming amount of its financial benefit on the more affluent. While the legislation offers some seniors with annual incomes between $27,000 and $47,000 a tax cut of $3 to $90, those with annual incomes between $132,000 and $337,000 would realize a tax windfall of between $1,265 to $1,378. The Institute on Taxation and Economic Policy indicates that 72 percent of seniors will receive no benefit from the proposed tax cut.

This legislation therefore builds more inequities into the Missouri tax code, but its biggest drawback is that it undercuts the ability of the state of Missouri to adequately fund vital state services. In fact, this proposed tax cut could set the stage for further cuts in vital state services in the years to come. This is how proposals like HCS/HB 444 hurt the poor: they receive no benefit from the tax cut but are harmed when the services they need are reduced or eliminated after the tax cut is made.

There are occasions when a well-structured tax credit or deduction can promote the public good. Tax code changes can leverage private investment in innovative initiatives where traditional public programs are failing. The MCC has supported tax credits of modest amounts to expand scholarship assistance to poor school children who are not succeeding in their local public school. HCS/HB 444, however, promotes no such public purpose.

This tax cut is proposed as the legislature considers legislation to sell off nearly $2.4 billion of the assets of the Missouri Higher Education Loan Authority (MOHELA) in order to obtain projected sale proceeds of $335 million. Although selling off assets can be a viable financial strategy in some circumstances, repeated recourse to selling one-time sources of revenue is not a sustainable practice and can seriously erode the resources the state needs to meet the needs of its citizens.

In general, after experiencing several years of tight state budgets necessitating significant funding cuts in vital state services, now is not the time to sale off significant assets or enact major tax cuts which will reduce the revenue of the state not only in the current fiscal year but in the fiscal years to come. Instead, this is time to re-invest in those essential services that promote the common good and will allow Missouri citizens to access college education, affordable health care and other public services.

Rather than cutting taxes to more affluent seniors at this time, the Missouri Catholic Conference suggests the legislature reconsider the fiscal needs of the state before making major cuts in its revenue base.