The Missouri House gave first-round approval to a $1 billion personal and corporate income tax cut Tuesday, as Republicans pushed the bill through despite Democratic warnings that vital services would be starved for funds.
The bill would cut the top rate on personal income taxes, cut the corporate income tax rate in half and exempt Social Security payments from taxation. State Rep. Dirk Deaton, R-Noel, said the bill would promote economic growth, noting that future tax cuts included in the bill only take effect when triggered by revenue growth.
“This is really just limiting the growth of government,” Deaton said.
Democrats, however, said a tax cut — coming on top of a tax cut approved in September that has not been fully implemented — would put the state into a potentially precarious financial position. Despite recent pay raises and incentives, state employees are still the worst paid in the nation and teachers are near the bottom of the pay scale, said state Rep. Peter Merideth, D-St. Louis.
“Their goal is to tear down these institutions,” he said. “They don’t want public education any more.”
The bill would accelerate a tax cut approved in September that will reduce state revenues by almost $800 million annually when fully implemented. The corporate tax cut would be the second in less than five years.
House Speaker Dean Plocher, R-Des Peres, made a corporate tax cut a top priority for the chamber as the session opened.
Missouri is enjoying a massive budget surplus currently approaching $7 billion, with more than $5 billion of general revenue in the bank. For most of the past three years, revenues have grown at double-digit rates.
Projections made in December forecast that general revenue would total $13.1 billion in the current fiscal year. That would be a significant slowdown in current growth rates, but the ongoing general revenue surplus is projected to remain high: $4.9 billion on June 30.
The slowdown in revenues has yet to materialize, however, with growth for the fiscal year so far at 12.5%, which would add $1.4 billion to the surplus if it continues.
Under the tax cut approved last year, the top income tax rate was reduced from 5.3% to 4.95%, with four additional cuts, to 4.5%, triggered by future revenue growth. Deaton’s bill would set the top rate at 4.5% immediately, with additional cuts taking it to 4.05% in four steps. That would decrease state revenue by about $500 million annually.
The personal income tax brought in just under $10 billion before accounting for refunds in the fiscal year that ended June 30. Revenue from the personal income tax has increased 29% since fiscal 2018.
Corporate taxes brought in $909.7 million in the most recent fiscal year, an increase of 97% since the rate was cut from 6.25% in 2018. The corporate tax portion of the bill would cut the top rate to 2% from 4%. That would reduce revenues by about $355 million annually, with the potential for additional cuts that would lower revenues by $533 million total.
The tax cut for people receiving Social Security would end state taxation of any portion of their benefits currently being taxed at the federal level. The fiscal estimate pegs the cost at $144 million annually.
The Social Security provision will make the state more attractive to retirees, said Rep. Michael O’Donnell, R-Oakville.
“Bringing these folks to the state of Missouri with their steady income helps shore up our economy,” O’Donnell.
In addition to the economic benefits of lower taxes, the current state bank balances are excessive, Rep. Doug Richey, R-Excelsior Springs.
“We are collecting more in tax revenue than is necessary to cover essential services,” Richey said. “We need to reverse the tables.”
Meredith, however, said Republicans are trying to cut too deeply and will face a reaction from taxpayers who want services funded. Kansas cut too deeply and had to put taxes back in place, he noted.
But unlike Kansas, lawmakers in Missouri cannot unilaterally raise taxes. Any effort to restore the revenue would require a statewide vote.
Former Kansas Gov. Sam Brownback’s “experiment failed miserably, and guess what?” Meredith said. “They have a Democratic governor now, don’t they?”
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