Senate committee approves income tax cut plan

A Republican plan to cut Missouri income taxes for individuals and businesses won quick approval Thursday from a Senate committee, potentially putting it near the top of the list for Senate debate this year.

The legislation (SB509) would gradually reduce Missouri’s top individual income tax rate from 6 percent to 5 percent over a decade. It also would phase in a 50 percent deduction over five years for business income reported on individual income tax returns.

The incremental tax cuts could begin in 2015 but would take effect only as long as Missouri’s net general revenues rose by at least $100 million over the high mark from the previous three years. Supporters said that guarantees the tax cuts would not result in plunging state revenues.

“We’re returning taxpayer dollars to taxpayers in a sensible, responsible way,” said Sen. Will Kraus, R-Lee’s Summit, the bill sponsor and chairman of the Senate Ways and Means Committee.

Democratic Gov. Jay Nixon, who vetoed a tax-cut bill last year, issued a stern statement describing the new measure as “a billion dollar experiment” that would take money away from schools.

“Once again the choice is clear: The General Assembly can get serious about fully funding our schools, or they can undertake fiscally irresponsible experiments with our tax code, but they cannot do both,” Nixon said.

Legislative researchers have estimated the bill’s provisions could waive about $900 million of tax revenues annually once fully implemented.

Most of that cost estimate is attributable to the individual income tax cut and the new business income deduction. But the legislation also would grant an additional $1,000 tax deduction to people with incomes below $20,000, which would not be contingent on the continued rise of state revenues.

Similar income tax cut provisions were included in last year’s vetoed bill. But the 2013 legislation also had numerous other provisions, including an additional income tax cut that would have been triggered if Congress passed federal legislation making it easier for states to collect sales taxes on Internet retail sales.

Nixon raised lots of concerns about last year’s bill. Among them, he cited a drafting error that could have imposed sales taxes on prescription drugs and said the combination of income tax cuts could have drained money available for schools and other services.

Little appears to have changed since then. During his State of the State address earlier this week, Nixon declared he would not support any tax cut “that takes money out of our classrooms.”

Republican lawmakers contend it’s possible to both cut taxes and increase school funding. Democrats doubt that.

The tax cut legislation “takes out too much revenue from the important services that we have, and there’s been no demonstrated proof that it actually would help our economy,” said Sen. Paul LeVota, D-Independence, who voted against the bill Thursday.

The push for a Missouri tax cut is driven partly by recent tax cuts in neighboring states, particularly in Kansas. Over the past two years, Kansas has exempted the owners of 191,000 businesses from income taxes and also sliced its tax rates for individuals.

Some Missouri lawmakers fear businesses in the Kansas City area will be lured to Kansas by the lower taxes. But opponents of a Missouri tax cut also have pointed to Kansas, noting that falling revenues there have made it more difficult for Kansas to recover from previous cuts to school funding.

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