J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS PROBLEMS WITH HOUSE BILL 253 August 2013

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS The Proponents Argue Happy Days Are Here Again, So Let’s Cut Taxes!! Not true. Most of the FY 2013 increase in general revenue came from increased capital gains taken in late CY Individual income tax withholding grew 3.5%. Sales tax grew 1.3%.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Rockefeller Institute Report on Capital Gains “Time Bandits” In 2010, “…0.9 percent of taxpayers accounted for 86 percent of capital gains.” For states, “the fourth and final payment of estimated taxes rose by 25.2 percent.” Federal taxes, “nonwithheld taxes for April and the first few days of May were up by 37 percent.”

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS What are the problems with HB 253? Riddled with technical flaws Bad tax policy Even worse public policy Helps the rich, hurts the middle and lower classes

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Who Does HB 253 Help? The proponents are running ads with what look like middle class workers in the background, implying the tax cut is for the middle class. HB 253 does virtually nothing for the middle class. Those ads are a scam. HB 253 is aimed at the wealthy, not the middle class.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Taxpayer Fairness and Equity Family SizeTaxable IncomeFirst Year HB 253 Tax Cut 3$30,000$90 4$48,277$6 3$60,000$15 2$225,000 (net) $1,100 2$500,000 (net) $2,400

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Missouri Families Lose

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Missouri Families Lose

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Triggers There is no trigger for the 50% reduction for business income. The.5% reduction in income tax rates tied to passage of federal Marketplace Fairness has no other trigger. The only triggers are for the rate cut, and year one will already be triggered. So only the middle class cut are subject to a trigger.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Marketplace Fairness No sunset on the linkage, no other trigger. Fiscal note assumes new general revenue of $342 million to $542 million. There is no reputable study or basis for this number. Most reputable study would indicate general revenue increase is only $80 million. When triggered this tax cut will leave a quarter billion $$ hole in the budget.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Other Fiscal Note Problems The fiscal note assumes business income is only Line 12—Business Income. It excludes Schedule D (capital gains), Schedule E (rental and royalties), and Schedule F (farm income). These taxpayers will assert their income is business income. The fiscal note does not account for any shifting of income to business income. This will occur.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS A 50% reduction in business income cuts taxes by more than 50% Business income is Line 12 of Form There are income related deductions below Line 12 that are fully allowed, even though income is cut in half. Effective tax reduction for many businesses will be 70% to 80%.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Long Term Ramifications of HB 253 Middle class will understand “they were had” and will want tax relief for themselves. Taxpayers with capital gains, rental and royalty income, and farm income will also figure out “they were had” and ask for tax relief. Tax relief for the wealthy cannot be undone without a vote of the people. State services will suffer. Tax anarchy and chaos will ensue.

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Difficult to Reverse Constitutional requirements LOCK- IN changes Ensures that the worst of this recession will be the normal

J AMES R. M OODY & A SSOCIATES G OVERNMENTAL R ELATIONS C ONSULTANTS Bottom Line for HB 253 It is a tax cut bill for the wealthy. The proponents with their TV ads are scamming the middle class into thinking they will get a significant tax reduction. They will not.