State finances face $60M hit
Thursday, January 10, 2013
Missouri’s finances could take a $60 million annual hit because of a recent 2 percentage point increase in federal Social Security payroll taxes, according to the state’s budget director.
The federal Social Security tax reverted to 6.2 percent this month after the expiration of a 2 percentage point cut that had been in place for a couple of years. A rise in federal taxes can result in a decrease in state taxes, because people can claim their federal taxes as a deduction on their state income tax forms.
State budget director Linda Luebbering said Missouri officials already had assumed a reinstatement of the higher Social Security taxes when they met in December to project revenues for the fiscal year that starts July 1. That assumption proved true when the Social Security tax cut was not extended as part of the so-called “fiscal cliff” deal approved
Jan. 1 by Congress and signed the next day by President Barack Obama.
The federal legislation extended income tax cuts for most Americans that were originally enacted under President George W. Bush but allowed tax rates to rise on individuals earning over $400,000 annually and couples earning more than $450,000.
That increase in federal taxes theoretically would increase people’s deductions on state taxes, resulting in a further decline in state income tax revenues. But Luebbering said the federal tax hike on the wealthy likely will have little effect on state taxes. That’s because a 1993 state law caps the amount of federal taxes that can be deducted from state income taxes, and Luebbering said many higher-income individuals already are at that maximum deduction.
The federal legislation also sets estate taxes at 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. Last year, such estates were subject to a top rate of 35 percent. Luebbering said that should have no effect on Missouri, because states no longer are allowed to share in federal estate taxes.
Luebbering said some budget uncertainty remains for the state because of ongoing federal discussions about funding cuts to defense spending and other programs.