JEFFERSON CITY, Mo. (AP) — Missourians could get a break on state income taxes under a proposal approved by the Republican-led state Senate on Wednesday.
Senators voted 24-4 to send the bill to the GOP-led House for consideration.
The roughly $1 billion proposal would cut the top income tax rate from 5.3% to 4.95% beginning in 2023. Most Missouri earners pay the top income tax rate, which applies to those who make more than about $8,700 a year in taxable income.
“I think the mechanism of growth in our economy that we put in place for these triggers to continue to tick down is a responsible approach,” said Sen. Lincoln Hough, R-Springfield.
After the rate is reduced to 4.95% in 2023, future reductions would only happen if certain revenue growth is met. Under the legislation, Missouri’s revenue must grow by $175 million in the first year and by 2025, revenue must grow by at least $200 million to lower the income tax rate. When fully implemented, Missouri’s income tax rate would be 4.5%.
“Making sure that we did not handcuff a future legislature and their opportunity to address tax policy,” said Senate President Pro Tem Dave Schatz, R-Sullivan. “I thought it was a very measured approach when we took this approach with the triggers.”
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.
“The folks that make those larger sums of money, they pay more in taxes, they pay plenty in taxes,” said Senate Majority Leader Caleb Rowden, R-Columbia. “We want this thing to be as fair and as uniform across the board relative to the amount of money you make.”
Four Democrats voted against the legislation, Sen. Brian Williams from University City, Sen. Jill Schupp, D-Creve Coeur, Sen. Angela Mosley, D-St. Louis and Sen. Greg Razer, D-Kansas City.
“So many other areas where we need to insure state employees need a raise, so that’s where my focus is it really isn’t focused on a tax cut for wealthy people.” Williams said.
The measure also eliminates the lowest tax bracket, meaning earners who bring in less than about $1,000 a year no longer will have to pay state income taxes.
Lawmakers returned to work last week in response to Republican Gov. Mike Parson’s call for a special session to cut taxes. He proposed an income tax cut as a way of spending some of the state’s record budget surplus.
Parson directed lawmakers to slash income taxes to 4.8%, as well as to increase the standard deduction by $2,000 for single filers and $4,000 for couples.
Other Democrats that voted in favor of the bill say this was the least damaging plan to give Missourians a tax cut.
“It’s probably the most responsible way to do it,” said Senate Minority Leader John Rizzo, D-Independence. “Is it exactly how we wanted a tax cut? No, we would have rather had it with a $500 or a $1,000 rebate check to control the costs for the future.”
The governor’s call for a special session came after he rejected a rebate plan that was passed by lawmakers during regular session. The legislation would have given taxpayers checks worth up to $500 for individuals and $1,000 for couples.
The Senate proposal represents a compromise between cautious Republican lawmakers concerned about the state’s ability to pay its bills long term and those eager to slash taxes even more deeply.
Disagreements over how much to cut continued for months as lawmakers worked to build consensus behind the scenes. Parson had called on lawmakers to return to the Capitol on Sept. 6, but they pushed back work to continue private talks.
On Wednesday, both Republican and Democratic senators described the compromise as “reasonable.”
“A special session is probably not the best time to engage in a dramatic rewrite of the tax code,” Republican Senate Majority Leader Caleb Rowden said, adding that more work could be done when lawmakers return for their regular session in January. “We did some good things in this bill, but we also didn’t dramatically upend anything.”
John Rizzo said he’s glad the Senate “did not go as far or as fast as the governor wanted to go in reducing revenue.”
Groups including the Missouri NAACP and the Missouri Budget Project, which analyzes how state economic policy impacts low-income residents, criticized the tax cuts as primarily benefitting the wealthy while spending money that could be used for health care, education and higher pay for state workers.
“It benefits the wealthy while leaving behind the working class and most vulnerable populations,” Missouri NAACP President Rod Chapel said in a statement. “Our women and children, blue collar workers, government employees, Black citizens and other minorities are once again ignored in this quest to aid the wealthy.”
Democratic House Minority Leader Crystal Quade warned that the income tax cut will have “devastating long-term consequences for Missouri government.”
The governor’s plan was set to cost the state around $700 million, but the Senate’s version, once fully implemented, totals near a billion dollars.
“He will probably have to modify that call to address what we have passed,” Schatz said.
The legislation now heads to the House.
Both chambers also passed their own version of tax credits for farmers. The governor vetoed that bill after 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.
Republican Sen. Lincoln Hough, who sponsored the Senate bill, said the tax cuts in total will cost about $950 million in lost state revenue once full implemented.
The state is slated to lose some of that revenue anyway, according to a cost estimate by legislative researchers.
Under existing Missouri law, earners will get gradual income tax breaks until the top rate reaches 4.8% if the state continues meeting revenue growth goals.
Hough’s proposal would accelerate those tax rate reductions and allow the rate to drop even lower over time. Factoring in expected losses under the current projected tax cuts, legislative researchers estimated the bill will cost about another $370 million per year.