With Missouri lawmakers set to reconvene in less than three months, a new report has sparked a debate that could preview upcoming battles over next year’s state budget.

Issued last month by the Missouri Budget Project, a nonprofit that researches budget, tax and economic issues, “Cutting to the Chase” argued that education and health services were bearing the brunt of state spending cutbacks.

According to the report, net general revenue in Missouri grew by about $641 million between 2000 and 2010, to approximately $6.7 billion. But adjusted for inflation, the report said, the 2010 figure was actually about 12 percent lower than the $6.1 billion collected in 2000.

One result, according to statistics cited in the report, is a mental health system that since 2007 has cut by about a third the money it spends on non-Medicaid community services.

And citing figures from the National Association of Community Health Centers, the report said that state funding for health centers has dropped by about two-thirds in the last three years, from $9.7 million to $2.8 million.

Adequate funding for education and quality, affordable health care is critical “not only for the wellbeing of today’s Missourians,” the report concluded, “but also for the state’s present and future economy.”

The solution to what the report calls this “erosion of Missouri’s general revenue” is additional tax receipts, said Jay Hardenbrook, director of public policy for the Missouri Budget Project.

But that drew criticism from Patrick Ishmael, a policy analyst with the Show-Me Institute, a St. Louis-based nonprofit that emphasizes free-market approaches to public policy issues.

The Missouri Budget Project’s suggestion that Missouri should spend more “implies that it thinks the government can spend Missourians’ money better than Missourians can freely in the economy,” he said in an email. “I find that very doubtful. Smaller, more efficient, and more effective government is what Missourians seek, not massive new government spending.”

Key players on tax and budget issues include state Reps. Margo McNeil, a Florissant Democrat, and Doug Funderburk, a St. Charles Republican and chairman of the House Tax Reform Committee.

Others include former state Reps. Mike Sutherland, a Warrenton Republican, and Jeanette Mott Oxford, a St. Louis Democrat. Oxford left the Assembly this year, and Sutherland left in 2010, having spent part of his tenure as chairman of the House Ways and Means Committee.

Pending the outcome of the Nov. 6 elections, Republicans outnumber Democrats in the House 104-56 (with one independent) and 26-8 in the Senate. The General Assembly is scheduled to reconvene on Jan. 9.

Tax reform ideas advanced by Hardenbrook include:

• Legislation allowing Missouri to capture part of state sales tax lost on Internet purchases, an issue known as the “streamlined sales tax.”
• Elimination of tax credits that don’t seem to be working
• Updating Missouri’s income tax code, which critics said has not changed since the 1930s.

Tax reform proponents said the streamlined sales tax might have the best opportunity of the three ideas to pass next year. They said it could initially generate about $20 million in annual state revenue.

If enacted, streamlined sales tax legislation would require Missouri to join a 24-state consortium that works with approximately 1,400 retailers who voluntarily collect and remit sales taxes on Internet purchases.

Sutherland is working as a consultant to the Missouri Budget Project on the streamlined sales tax, and he said proponents perhaps have finally convinced enough lawmakers that it would not be a tax increase.

“It has taken some time to sort of get over that stigma,” he said. “But I think we are sort of past that.”

McNeil said there is growing recognition among her colleagues that this is an issue of economic competitiveness.

“All Missouri businesses are being undercut by our failure to have a tax code that can receive the taxes that are really owed,” she said “This is a problem that has to be fixed. The Internet sales are only increasing, and so that hole in our revenue bucket keeps getting bigger and bigger each year.”

McNeil cosponsored streamlined sales tax legislation with Funderburk during this year’s session. The measure ultimately died though it was passed out of the Tax Reform Committee on a 9-3 vote.

McNeil said that a year or two ago, Gov. Jay Nixon told her he would sign streamlined sales tax legislation if it made it to his desk.

Neither Nixon’s press office nor Funderburk returned email and phone messages seeking comment.

Tax reform proponents have less confidence in next year’s chances for reform of tax credits or the tax code.

According to a 2010 state audit, the roughly $584 million in tax credit redemptions in fiscal year 2009 represented a nearly 60 percent increase in eight years — comprising about 8 percent of net general revenue.

The Senate this year failed in its effort to craft tax-credit-reform legislation, but Hardenbrook said he expected a “big push” again next year.

Oxford, now executive director of the Missouri Association for Social Welfare, pushed for modernization of Missouri’s income tax code during her eight years in the House.

Her proposal, which she said would have raised about $1 billion, included a provision that would have raised the maximum income tax rate to 9 percent for incomes greater than $50,000. The current maximum is 6 percent for incomes greater than $9,000.

She said she hoped that the upcoming elections produce a more narrowly divided General Assembly.

“When we don’t have such a one-party-dominated system,” she said, “there is better discussion because people do have to get along with each other a little better. There’s not so much, sort of like, bullying because you have the numbers to do whatever you want without having anybody else help you.”