Mike Parson is talking to Sam Brownback’s ‘tax experiment’ architect. Beware, Missouri

Missouri Gov. Mike Parson has called a special session of the state legislature, asking it to consider permanent income tax cuts that would cost the state about $700 million a year, or more.

The session begins Sept. 6, right after Labor Day.

We urge lawmakers to approach Parson’s plan with extreme caution, and skepticism. A permanent tax cut could cripple Missouri’s budget in future years, threatening education, health care, public safety and a host of other essential services.

Parson, and other Republicans, don’t see any danger. They point to an end-of-year surplus of $4.9 billion, a record, built on higher incomes, more sales tax collections and federal grants.

“We believe that the state can pay the bill,” Parson said last week.

But reality is more complicated. Some of that end-year surplus will actually be used over the next several months on state programs, pension payments and debt. The governor’s own budget, issued earlier this year, projected a $1.6 billion ending balance in July 2023 — less than a year from now — before any tax reductions.

If a recession hits and jobless claims grow, that surplus could shrink further.

Additionally, some of this year’s $4.9 billion surplus was built on federal spending enhancements for Medicaid, which are not permanent. When those go away, state money will have to pay for more Medicaid expenses.

Other federal funds will also eventually end. The result? A permanent $700 million tax reduction could mean a spending squeeze in as little as two years, according to the Missouri Budget Project, a left-of-center think tank.

“Relying on the current surplus to fund permanent tax changes isn’t fiscally sustainable, or responsible,” said Amy Blouin, director of the Missouri Budget Project.

Missouri House Minority Leader Crystal Quade of Springfield called the tax cut plan a “textbook example of fiscal irresponsibility.”

Arthur Laffer advised Kansas on tax cuts

We went through this with Kansas, remember? A decade ago, Kansas reduced its top income tax rate from 6.45% to 4.6% (Parson’s plan would cut the top rate from 5.3% to 4.8%). Then-Gov. Sam Brownback called his plan an “experiment” designed to promote economic growth.

As state revenues plunged, lawmakers scrambled to cover budget shortfalls by slashing spending. State accountants spent sleepless nights shifting money from one account to another just to keep Kansas afloat. Legislators argued endlessly over ways to restore the state’s budget.

So it’s beyond scary to learn Parson is talking with tax-slashing “trickle down” economics activist Art Laffer — the same man who advised Brownback and Kansas — to design a new tax structure in Missouri. Fool me once, shame on you. Fool me twice … you know the rest.

Parson insists the comparison isn’t accurate. “We’re not going to do what Kansas did over there. It won’t even be close,” Parson told reporters last Tuesday. And, to be fair, Parson’s plan is less drastic than the Brownback approach.

But the tax rules are different in Missouri, and they make a bet like the one Parson is asking legislators to make much riskier. Parson eyes a $1.6 billion surplus as plenty big enough to allow the state to return $700 million to taxpayers. But what happens if Parson’s projections are wrong, or if the state’s economy falters? That surplus will melt away quickly. And unlike Kansas, Missouri lawmakers can’t generally raise taxes on their own.

If lawmakers follow Parson’s lead to impose permanent cuts to the tax rate, then any subsequent increase will have to be approved by the voters in a statewide initiative. Lawmakers facing a deficit likely wouldn’t be able to wait on voter permission to boost revenue. Instead, they’d be forced to make cuts to education, colleges, mental health services, senior services, transportation and infrastructure would be on the table. Just like Kansas.

There are alternatives. A one-time fully refundable credit to taxpayers would put extra funds in Missourians’ pockets, and help the poor too, without threatening spending in lean years. Missouri should also consider serious tax reform, which would include raising rates on wealthier residents while cutting them for low-income taxpayers.

Revenue-neutral tax reform would protect important public programs while making the tax system more even and fair. That should be the goal in every state.

We know. In an election year, pushing through a major tax cut looks like good politics. With costs growing for families, extra dollars in pockets seems like a good idea.

But an overly-aggressive tax cut, built on the shifting sands of the economy and federal largesse, could mean problems for Missouri long after Parson has left office. As legislators gather for the special session, they should look farther down the road, not just around the corner.