A tug of war has developed at the Capitol over whether the state should meet its obligations before it cuts any taxes.
Tax cut backers hope they’ve found a plan Governor Nixon can agree to. He vetoed last year’s bill. This one cuts the individual income tax rate by one percent during a long period of years, and cuts the individual income tax for business income in half, also during a long time.
The sponsor says his plan will be critical to small business. But critics question whether the tax cuts will mean greater investments in businesses, leading to economic growth.
But two Senators suggest no tax cuts go into effect until the state has fully funded elementary and secondary education. That program is more than 600-million dollars short of where it should be. Another proposal says no tax cut could go into effect until the state has made payments on its debts and gotten caught up with schools.
Much more debate is coming before there’s a vote.
The Senate summary of the bill:
SCS/SBs 509 & 496 – The act modifies the individual income tax rate table. The maximum tax rate on personal income will be reduced by one percent over a period of years. Each reduction to the rate will be by one-tenth of a percent. No reduction will go into effect unless the net general revenue collected in the previous fiscal year exceeded the amount of net general revenue in any one of the three fiscal years prior to such year by at least $100 million. Once fully phased in, the top rate of tax on individual income will be five percent. (Sections 143.011 & 143.021)
The act creates an individual income tax deduction for business income and phases it in over a period of years. Each increase to the deduction amount will be by ten percent. Once fully phased-in, taxpayers will be allowed a fifty percent deduction. No increase to the deduction will go into effect unless the net general revenue collected in the previous fiscal year exceeded the amount of net general revenue in any one of the three fiscal years prior to such year by at least $100 million. Shareholders of S corporations and partners in partnerships will be allowed a proportional deduction based their share of ownership. (Section 143.022)
Currently, there is a personal exemption amount of $2,100 for personal income taxes. This act increases the exemption amount by $1,000 for individuals with a Missouri adjusted gross income of less than $20,000. (Section 143.151)
This act is similar to provisions contained in SS/HB 253 (2013) and SB 26 (2013). The business income deduction provisions are similar to SB 11 (2013), SB 26 (2013), HB 536 (2013), and SB 661 (2012).