State Treasurer Eric Schmitt (R) has announced an income tax cut for Missourians. Revenues have reached a level where a 2014 law will kick in at the beginning of 2018.
The legislation was billed as a tax cut with a trigger at the time it passed the legislature. It was designed to responsibly decrease personal and business income taxes only when the state had enough money set aside to do so.
If revenue collections in a year exceeded any of the three previous years by $150 million, income taxes would drop by one-tenth-of-one percent in the next calendar year. Individual taxes for business income, basically small businesses, would decrease 5% under the same conditions.
The same scenario is allowed to play out four more times before the law sunsets. Once fully phased in, personal state income taxes would be reduced by half a percentage point, while small business rates would drop by 25%.
As it stands now, most Missourians will see their income taxes reduced from 6% to 5.9% staring in January. Small businesses (that file through the individual income tax structure) will see their rates drop to 5.5% at the same time.
Schmitt, who championed the legislation, says he’s proud to have led the fight for one of the largest tax cuts in state history.
“This will mean more job opportunities and more take-home pay for Missourians, which will in turn help to grow our economy” said Schmitt. “While states with poor fiscal management like Illinois and Connecticut look to raise their taxes to keep government bloated, Missouri is financially empowering its citizens by letting them keep more of their hard-earned money.”
Schmitt’s announcement of tax reductions comes just after neighboring Kansas and Oklahoma have each struggled to offset deficits approaching $900 million.
Oklahoma passed a $1.50 tax on cigarettes to help balance its shortage, while Kansas lawmakers repealed tax cuts similar to what Missouri is now implementing. Kansas, however, didn’t stagger the reduction or put triggers in place as the Show Me state has.
Tracy Gleason with the Missouri Budget Project thinks the timing of Schmitt’s announcement is interesting, given Governor Greitens’ recent move to withhold $250 million from state services.
“We’re in a situation where we’ve met this so called trigger” said Gleason. “But we’re having to make reductions to education, to services to for seniors, people with disabilities. Yet we’re putting these tax cuts into effect.”
Last Friday, Greitens vetoed a measure that would have provided 8,000 seniors with in-home and nursing home care, and pulled $24 million from higher education as part the withholds he announced.
House Budget Committee Chairman Scott Fitzpatrick doesn’t see the tax cut as a threat to the state’s finances as long big ticket items can be kept in check. “As long as we can manage our Medicaid expenses and as long as we don’t have a nationwide economic crisis, I think we can manage the tax cuts” said Fitzpatrick.
Treasurer Schmitt, who served two terms in the state Senate and helped craft the law with fellow Republican Will Kraus of Lee’s Summitt, says the tax cut will fix the budget problem because it’ll bring more spending to grow the economy.
“We have a growth issue in this state. It’s my personal belief, and the belief, I think, of a lot of folks out there that we’re going to grow jobs by lowering the tax burden on working families. And lowering the tax burden on small businesses so that they have more of their own money.”
After passing the tax cut in 2014, the Republican dominated legislature overrode then Democratic Governor Jay Nixon’s veto of the plan.
Gleason, with the Missouri Budget Project, doesn’t think the law was properly drawn up. She notes the trigger was set at an amount that’s not keeping up with cost increases for the state.
Gleason says the tax cut is poorly advised now because the state’s already having trouble paying its bills, and the savings for taxpayers will be minimal. “Missourians might take home a couple of more bucks, but that doesn’t help us pay for our roads, our schools.”
An analysis shows most taxpayers will save about $11 when cut goes into effect next year.
Fully implemented, the highest income people – those with average annual incomes of almost $1.1 million – would receive a tax cut averaging almost $8,000 per year.
According to the study, which was conducted by the Institute on Taxation and Economic Policy, a family with an income between $33,000 and $52,000 would receive a $57 tax cut per year.
The tax cut does have a special provision allowing for an additional $500 exemption for individuals who earn under $20,000 per year.