In addition to outlining the proposed changes, Young’s story foregrounds the role of Sinquefield and Save Missouri Jobs, an advocacy organization that he is helping to bankroll, which has run ads promoting tax cuts in the state. Young told me that lawmakers have been trying to publicly distance themselves from the controversial Sinquefield even as he has been a major force behind the proposals.
“I felt it was important to step back and get his role in it,” Young said. Her story notes that, “[t]hough they say they didn’t draft it, Sinquefield’s lobbyists have been working the Capitol’s hallways” for the bill—and quotes a representative from Save Missouri Jobs voicing his support for the measure.
The Show-Me Institute, a nonprofit organization cofounded by Sinquefield, released a report in February advocating a tax reduction on pass-through income to help Missouri remain competitive with Kansas. Noting that the Sunflower State has reduced its top income tax rate and, “[p]erhaps more importantly,” eliminated taxes on pass-through income, the authors of the report argue that “Kansas has made its tax environment far more attractive not only to businesses already in Kansas, but also to businesses in neighboring states.”
Yet, despite the importance that Sinquefield and his allies have placed on the pass-through issue, the 50 percent pass-through reduction has received little attention in stories about the tax cut initiative—only a passing sentence in Young’s April 29 story, and brief treatment in Post-Dispatch articles about the earlier House and Senate plans. Coverage of this week’s revised Senate bill from the Kansas City Star, the Columbia Daily Tribune, and the start-up St. Louis Beacon similarly devoted little space to the issue.
One good reason for this is that other aspects of the story are, if not exactly sexy, at least more accessible and familiar. Young’s April 29 piece gives close attention to the proposed sales-tax increase that was included in the earlier proposals, which was the most controversial provision of the bills—and the one that drew a veto threat from Nixon, who argued the hike would place too high a burden on lower-income residents.
Everybody understands what sales tax is. The same goes for income tax, and, more or less, corporate tax. By contrast, pass-through taxation is fairly arcane stuff; the term itself is off-putting jargon. Statehouse reporters know politics inside and out, but, like most voters, they don’t necessarily understand the intricacies of the tax code.
“You can’t be an expert on everything, and tax policy is one of the more opaque issues,” said ITEP’s Gardner. “Sadly, I think lawmakers rely on that—the opacity of the issue.”
But do the lawmakers themselves even understand it? Ken Stephens of The Hutchinson News, who wrote about Kansas’s pass-through tax cut last year, isn’t so sure.
“I guess my advice to Missouri reporters would be that they need to find some expert analysis of the law, because the legislators writing the tax law are amateurs and don’t understand it themselves,” Stephens told me in an e-mail. “The Kansas law had many flaws, some of which they tried to fix through administrative interpretations by the Kansas Department of Revenue.”
For his story, Stephens spoke with a local accountant and with a tax-law expert from the University of Kansas, both of whom expressed uncertainty, even puzzlement, about the pass-through measure.
“It’s kind of weird,” law professor Martin Dickinson told Stephens. “I’ve talked to a lot of lawyers who are very self-conscious about this. … He’s not going to have to pay any tax and his secretary will. Those folks feel self-conscious about an arrangement of that kind, which they don’t feel is proper.”
Given the pass-through exemption and all the other Kansas tax cuts, Stephens wrote: “If you’re wondering who’s left to pay taxes, Dickinson said it basically comes down to employees who work for wages, retirees, and people with passive investment income.”
Meanwhile, who’s benefiting? Many press accounts say that the pass-through exemption benefits businesses, or even “small businesses”—the line pushed by the Show-Me Institute and other advocates. In fact, many so-called pass-through entities are not small at all.
“We know there are some really large ones, like PricewaterhouseCoopers,” Gardner said. “They’re not Mom-and-Pops in any sense.”
Other notable pass-through entities include numerous Koch Industries subsidiaries such as Koch Business Solutions LP and Koch Fertilizer, LLC, as well as the investment firm cofounded by Sinquefield, Texas-based Dimensional Fund Advisors LP, and the Sinquefield-affiliated, St. Louis-based lobbying shop Pelopidas LLP.
“The real question is: Where is the lion’s share of pass-through income located?” Gardner said.