JEFFERSON CITY, Mo. — Work continues at the Missouri State Capitol as lawmakers find a way to answer the governor’s call for a special session to lower the state’s income tax rate.
Gov. Mike Parson is asking the General Assembly to lower the income tax rate from 5.3% to 4.8%. The Senate passed its own version last week, and now it’s the House’s turn, where some have said this is irresponsible.
“I’ve very worried when we’re talking about a tax cut of a billion dollars once fully implemented, how are we going to afford to make those investments,” said Rep. Peter Merideth, D-St. Louis.
The Senate’s plan is to reduce the income tax rate to 4.95% beginning in 2023. Then, future reductions would only happen if certain revenue growth is met. Under Senate Bill 3 and 5, sponsored by Sen. Lincoln Hough, R-Springfield, and Sen. Andrew Koenig, R-Manchester, Missouri’s revenue must grow by $175 million in the first year to lower the rate again to 4.8%.
By 2025, revenue must grow by at least $200 million to lower the income tax rate after that. When fully implemented, Missouri’s income tax rate would be 4.5%. The proposal also eliminates the lowest tax brackets, which means earners who bring in less than $14,000 a year no longer have to pay state income taxes.
“This is geared towards the folks back at home who are stretched a little more thin than they were a year ago,” Hough said to the House Budget Committee Wednesday. “I have rarely ran into someone who says I wish this state would take more of my money.”
The legislation received bipartisan support in the upper chamber, with only four of the 10 Democrats voting against it. Some argued this is a plan to lower taxes for the wealthy.
“The one area where it falls a little bit short is that it doesn’t provide that fairness to every Missouri taxpayer, it weighs towards the top end,” said Jeremy Lafaver with the Missouri Budget Project.
According to the Missouri Budget Project, if a Missouri household makes $13,000 a year, they would save $3 under this plan. Those making $30,000 would roughly save $17. Taxpayers with incomes of between $40,000 and $52,000, they would see an average tax cut of $66 in 2023.
Those earning between $66,000 and $86,000 would save $143. Missourians making somewhere between $110,000 and $152,000 would save $348, those making around $332,000 would save $826 and taxpayers making between a half a million and $1.5 million would save around $4,000. Jay Hardenbrook with Missouri AARP told committee members that older Missourians really won’t see a benefit from lower the state’s income tax.
“First problem is that it really doesn’t provide any sort of tax relief to the people who are the most impacted by the inflation problems that are happening right now, and that is older Missourians who are on a fixed income,” said Hardenbrook. “If you’re living on social security or public pension which is predominately what older Missourians, who are the majority of voters of Missouri, are living on, this doesn’t provide much if any relief.”
The House Budget Committee heard testimony Wednesday on the Senate’s bill. Some Democratic members like Merideth said he would rather see Missouri’s $4 billion surplus invested in state agencies and education.
“Are you factoring in any amount that you think we need to be able to keep in our budget to be able to pay state workers better, or fund schools at a higher level?,” Merideth asked Hough.
“I would say that the Senate, the House and the governor have all tried to make investments in the personal we need to do the jobs in the state,” Hough responded.
The governor’s plan was set to cost the state roughly $700 million dollars, but the Senate’s version, once fully implemented, totals near a billion dollars. During the hearing, members amended the Senate’s bill, putting an even higher price tag on the legislation.
One amendment added to the bill by the budget chairman Rep. Cody Smith, R- Carthage, would phase out the state’s corporate income tax over time. Currently, the corporate income tax rate is 4%. Parson has said Missouri has the second lowest in the nation. Smith’s proposal would lower the rate to 2% over two years, as long as the corporate revenue would grow by $150 million. Then after the rate is at 2%, it would be reduced by a quarter of a percent based on $50 million triggers until it’s completely phased out.
This provision is not in the governor’s call for a special session and will face problems in the Senate. Another amendment added by Rep. Hannah Kelly, R-Mountain Grove, would offer adoption non-refundable tax credits to Missourians who recently adopted a child. There would be a $6 million cap for the entire state.
Finally, Rep. Rasheen Aldridge, D-St. Louis, tacked on an amendment that would eliminate the sales tax on feminine hygiene products.
The amendment bill now goes in front of the full House Thursday for debate and a vote. If approved, it has to go back to the Senate for final approval. The governor also wanted lawmakers to increase the standard deduction by $2,000 for single filers and $4,000 for couples. Hough said many Senators weren’t comfortable with what that was going to cost the state and left it out.
“The price tag associated with the governor’s proposal was about $250 million,” Hough said. “We had considerable discussions about whether or not that number was sustainable. So, ultimately what we landed on were further dropping the individual income tax rate down to ultimately 4.5% but doing so over a number of years.”
The other reason why lawmakers are here for a special session is to reauthorize tax credits for farmers. Last week, both chambers passed their own versions of the tax credit. The governor vetoed that bill after the regular session because he wanted a six-year plan instead of two.
The tax incentives help farmers and ranchers throughout the state. It includes the creation of tax credit programs for retailers of higher ethanol blend fuels and biodiesel, in-state biodiesel producers, establishing or improving urban farm operations, and creating the Specialty Agricultural Crops Act. Tax credits would be extended for meat processing facility improvements, transportation of agricultural goods, and an exemption for certain vehicles from state and local sales and use taxes.