With Republicans in Congress poised to push through legislation overhauling the federal tax code, a pair of Missouri Republicans announced their plans to push through similar legislation in 2018.
State Sen. Bill Eigel, R-Weldon Spring, announced his plan Wednesday at the Capitol. State Rep. Travis Fitzwater, R-Holts Summit, will sponsor a version of Eigel's plan in the House when Missouri's 2018 legislative session starts Jan. 3. Both men said the bill could pass many small tax increases that wouldn't otherwise be passed, but also reduce the tax burden on families and small businesses.
Eigel's bill is one of two pre-filed bills that attempt to overhaul the state's tax brackets, which haven't changed since 1931. Under the plan, the state's current income tax structure would be scrapped and the top two and bottom four brackets eliminated.
The top tax bracket would tax all income more than $7,000 at a rate of 4.8 percent. A bottom bracket would tax all income less than $5,000 at a rate of 3.5 percent. Each year thereafter, each tax bracket would be reduced by 0.1 percent during years when general revenues increase or don't change.
"The big idea here is that we're going to reduce the tax burden on the Missouri working households and businesses," Eigel said.
To pay for the tax cut, Eigel's bill would raise the fuel tax from 17 cents per gallon to 23 cents per gallon. It would cap the amount of tax credits that can be given out at $425 million. That includes a $135 million cap on Missouri's Low Income Housing Tax Credit Program.
A loophole which allows retailers that submit sales taxes in a timely fashion to keep 2 percent of that revenue also would be closed. Left-leaning think tank the Missouri Budget Project estimates this loophole costs Missourians $114 million each year.
Eigel's bill would reduce annual operation fees for companies that run fantasy sports contests from 11.5 percent to 6 percent. The Missouri Lottery Commission estimates this could cause a loss of approximately $329,000, according to a March analysis.
If passed, Eigel's bill could push the state toward collecting online sales tax by requiring the state to join 24 others in the the Streamlined Sales and Use Tax Agreement. Created in 2000, the agreement simplifies collecting online sales taxes.
On their own, Eigel said, many of these changes normally would have little chance of making it through a General Assembly with a Republican super-majority. Packaged with a tax cut, though, Eigel believes Republicans can support the bill. Fitzwater agreed.
"These things in and of themselves are very hard to get done by themselves," Fitzwater said. "It's kind of this conservative conglomeration of ideas that allow you to decrease people's tax rates while also ensuring that you can put money into the budget with tax credit reform."
It would take about 50 years, but the state's income tax could be eliminated entirely under the bill. Currently income taxes make up approximately $7 billion of Missouri's $27 billion budget.
Eigel and Fitzwater said Missouri's general revenues are growing at a rate of 8 percent and the state needs to give that money back to households and small businesses.
Indeed, general revenue collections increased at rates of 8.9 and 8.2 percent in October and November, respectively, according to a report by Missouri State Budget Director Dan Haug. General revenue collections also increased at a rate of 7 percent in August.
Still, revenue fell by 1.8 percent in September. In fiscal year 2017, revenue increased by just 2.6 percent from $8.79 billion in 2016 to $9.02 billion, according to Haug's office. Eigel also said later that revenues are up 5.1 percent for the fiscal year.
"We're making the tax code more fair and more broad," Fitzwater said, "which helps ensure that if we're growing, that taxpayers get more of their hard earned dollars back in their pocket."
Eigel said working-class households should benefit from eliminating the bottom four income brackets. Small business owners also should benefit from a large drop in their income tax as well, he said.
"When you're creating those jobs, when you're investing in the people that are making your business work, this is a great deal for you," Eigel said.
Congressional Republicans agreed to a final bill to reform the federal tax code Wednesday. The bill will still need to be passed by the House and Senate and signed by President Donald Trump before it takes effect.
The U.S. House and Senate proposals roughly doubled the standard deduction on federal income taxes to approximately $12,000 for individuals and $24,000 for married couples.
Last week, Missouri NEA Legislative Director Otto Fajen said that particular federal change could cause at least a $700 million reduction in Missouri's general revenue because Missourians' state income taxes are calculated using the adjusted gross income figure on federal returns.
Eigel's bill ends this practice to protect the state budget from changes to the federal tax code. Similarly, the bill also would end the state tax deduction for federal income tax liability.
"Closing the federal income tax deduction would raise revenues," Eigel said. "But when you take into account the benefit Missouri households are getting, it's a net gain for Missouri taxpayers."
The goal for Eigel and Fitzwater is to make Missouri competitive with states without state income taxes and potentially attract businesses from high tax states.
North Dakota's gross domestic product increased faster than that of any other state during the second quarter of 2017, according to the Bureau of Economic Analysis. Wyoming and Texas, which do not have state income taxes, ranked No. 2 and No. 3 with GDP growth of 7.6 percent and 6.2 percent, respectively.
Missouri came in the middle of the pack with a growth rate of 3 percent. Florida and Tennessee, which also do not have state income taxes, grew at 3.6 percent and 3 percent, respectively.
Eigel said population growth spurs changes.
"If we had population growth in the manner that Texas has, that Tennessee has, Washington state, those individuals would be bringing their new ideas, their investment money, their tax dollars, all the things that help go into making a state successful," Eigel said.