Amid Push To Keep Up With Kansas, Some Missourians Question Tax Cuts

Companies have moved from Missouri to Kansas to take advantage of the state's new tax policies, but opponents of proposed tax legislation making its way through the Missouri State House aren't convinced tax cuts are what Missouri needs. Photo courtesy of Creative Commons

For accounting firm Meara Welch Browne, a move of less than six miles prevented a tax hit of 6 percent.

The company, which used to have its offices in Kansas City, Mo., moved just across the state line to Leawood, Kan. in February to take advantage of new tax policies there. Kansas last year enacted legislation that exempts the owners of certain types of companies — LLCs, S corps, partnerships and sole proprietorships are included — from paying taxes on “pass-through” income, and Meara Welch Browne qualified for the tax break.

In Missouri, the firm’s shareholders would’ve had to pay 6 percent tax on that income. But that could change soon.

John Meara | Photo from mwbpc.com

On March 12, the Missouri Senate passed SB 26, Republican-backed legislation to reduce income tax, increase sales tax and create a substantial new income tax deduction. The bill underwent slight changes in House committee hearings, and it’s currently awaiting a House vote.

The Senate bill proposes decreases in corporate income tax, from 6.25 percent to 5.5 percent, and personal income tax, from a top rate of 6.0 percent to 5.25 percent. A House committee has suggested a smaller decrease for personal income tax, to a top rate of 5.33 percent. All the proposed cuts would be phased in over five years.

The Senate approved an increase in the state sales tax, from 4 percent to 4.5 percent. The House committee has suggested an increase to 4.6 percent.

The Senate bill also proposes the creation of an individual income tax deduction that would be phased in over five years and eventually allow taxpayers to deduct 50 percent of business income.

John Meara, a partner at Meara Welch Browne, said that even if Missouri makes the changes, Kansas still offers a better tax situation.

“Kansas tax policies are more attractive to businesses, especially small businesses,” Meara said. “For Missouri, on the other hand, the tax policy is directed at everyone.”

Opponents fear burden on working class

Jay Nixon | Photo from governor.mo.gov

Cheryl Block, a professor of Law at Washington University in St. Louis, calls SB 26 a “crazy idea” that puts a disproportionate tax burden on lower-income people.

“Increasing the sales tax is going to hurt poor people pretty hard,” she said.

Proponents of the bill say it makes provisions for low-income Missourians. Currently, the state has a personal exemption amount of $2,100 for personal income taxes. If SB 26 passes, it will increase the exemption amount by $2,000 for individuals with a Missouri adjusted gross income of less than $20,000 per year.

Missouri Gov. Jay Nixon has criticized the legislation, suggesting that the sales tax increase would hurt working-class families making everyday purchases. He has also said it would be a hit to seniors and veterans, many of whom rely on Social Security checks or federal benefits and may not feel the intended effect of the increased income tax exemption.

‘Something has to be done’

Woody Cozad is the spokesperson for Save Missouri Jobs, an organization that pushes for a more favorable tax atmosphere in Missouri. Cozad said he is happy to see what the Senate has done.

“Our belief is that something has to be done, given what Kansas has done,” Cozad said.

He said the tax policy in Kansas still has advantages, and Missouri needs to make more changes in order to attract businesses.

“It’s a step in the right direction,” Cozad said, ”but we are still paying quite a bit.”

Others see Missouri’s proposed move as a misstep. The Missouri Budget Project is an advocacy group that aims to improve the quality of life for Missourians by informing public policy decisions through research and analysis of state budget, tax and economic issues.

On its website, it lists the top 10 reasons to oppose SB 26, stating that the proposed income tax reduction would require Missouri to cut $960 million from the state’s general revenue budget. The group says that would “severely undermine Missouri’s ability to invest in core public services like education, health, public safety, and infrastructure that promote our quality of life and make the state attractive for business investment.”

Washington University’s Block said if the legislation is driven by a desire to compete with Kansas, then Missouri legislators should have a lot of data and information to justify its passage.

“They are supposing a substantial cost on the state of Missouri,” she said, “for something that may not be effective in either saving businesses from (leaving) Missouri or bringing businesses to Missouri.”


Tags:, , , , , , ,

Leave a Reply