Missouri legislature passes income tax cut, ditching plan for eliminating corporate tax

JEFFERSON CITY — Republican lawmakers approved a plan to cut income taxes in Missouri on Thursday, abandoning a last-minute addition that would have also slashed tax rates for businesses while sending a package to Gov. Mike Parson's desk over the strong objections of Democrats.

The final deal reduces the top individual income tax rate from its current 5.3% to 4.95% in 2023, followed by another future cut that would bring it down to 4.8% and a series of "triggers" that would continue to lower the top rate by .1% annually if the state sees significant economic growth. Once the plan is fully implemented, the top individual income tax rate will be 4.5%, lower than all of Missouri's neighboring states. It also removes the bottom income tax bracket, making the first $14,000 of earned income tax-exempt.

Republicans touted the plan, which retains the core requirements of Parson's proposal with slight tweaks, as a no-brainer decision to return money to Missourians' wallets in a time when the state is enjoying a financial cushion and residents are hurting from rising prices and inflation.

"We are in a situation where due to a variety of reasons, we had an unprecedented general revenue balance that has effectively overtaxed our citizens," said Rep. Cody Smith, a Carthage Republican who chairs the House budget committee. "Even after earlier this year, we passed the largest budget in the state's history, we still have an excessive amount of revenue left over."

Democrats decried the plan as a politically popular but fiscally irresponsible decision that could put critical agencies and programs at risk of underfunding at the next economic downturn, and indicated that the wealthy would be the largest beneficiaries under the plan.

"Republicans are going to go back to their districts and talk about how they're putting more money back in Missourians' pockets," said House Minority Leader Crystal Quade, a Springfield Democrat. "They won't tell you that most folks will get just a few bucks back a year. They won't tell you that one-third of Missourians will get nothing."

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Passage of the plan in the House, on a 98-32 vote, came after Republicans on the budget committee attempted to add on a cut to the state's corporate income tax that would have eventually phased it out altogether. However, that addition was scratched after Parson signaled he would not support it.

A number of other proposed amendments and suggestions from both Democrats and a Republican were not considered. The minority party had prepared to propose a tax credit for teachers, a property tax reduction for senior citizens, and a refundable tax credit for low-income families. But a procedural move by Republican leadership made Democrats unable to propose those measures, which they voiced frustration with during floor debate.

"It sure feels like this was a slick move to prevent amendments from being voted on yet again, that the majority caucus doesn't want to vote on or even have the opportunity to vote on or discuss," said Rep. Peter Merideth, a St. Louis Democrat and the ranking member on the budget committee.

One Republican, Rep. Bill Kidd of Buckner, expressed similar frustrations with the plan. He said on the floor he preferred that the chamber move to cut personal property tax, which would provide more immediate relief to those on low or fixed incomes.

"If you're on a fixed income or low income, this tax cut's really not going to do much for you at all," Kidd said. "That's the truth."

An outside analysis of the plan by the think tank Missouri Budget Project projected it would primarily benefit the wealthy. An average person making between $22,000 and $40,000 would see about $29 per year in savings under the plan once fully implemented, according to the group; the average person making more than $552,000 would see about $9,578.

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In a statement Thursday, Parson praised the General Assembly's work and said his administration has now cut Missouri's income tax rate by a full percentage point, or an almost 15% reduction. His original proposal asked for an immediate cut down to 4.8%, which was altered, and an increase in the standard deduction, which was not included in lawmakers' final proposal.

Across the building last week, early negotiations ran into a number of disagreements but eventually found common ground among Republicans through a joint proposal sponsored by Sens. Lincoln Hough of Springfield and Andrew Koenig of St. Louis. Hough said in a statement Thursday the package "establishes a fiscally-responsible blueprint that will continue to provide tax relief to hardworking Missourians for years to come." The plan passed the Senate 26-4, with Democrats in the chamber split.

Once fully implemented over the coming years, the plan would reduce Missouri's annual general revenue by around $764 million, an updated special session call issued by the governor's office Thursday indicated. An outside analysis of the plan by the Missouri Budget Project estimated the annual revenue reduction at approximately $1.1 billion once it's fully implemented. Missouri brought in a record $12.9 billion of revenue last fiscal year, and ended with about $5 billion in surplus.

The legislature still needs to pass the other requirement Parson outlined in his call for a special session, which are extensions of tax credits for agricultural programs and industries. The Senate will convene Monday.

Galen Bacharier covers Missouri politics & government for the News-Leader. Contact him at gbacharier@news-leader.com, (573) 219-7440 or on Twitter @galenbacharier.

This article originally appeared on Springfield News-Leader: Legislature passes Missouri income tax cut, with no cut for businesses