Republican Governor Mike Parson has signed one of the last remaining high-profile proposals passed by the legislature this year.
He chose a business in the hometown of the bill’s sponsor, GOP Representative Elijah Haahr of Springfield, to pen an income tax cut.
The measure was the only piece of legislation carried this year by Haahr, the Missouri House Speaker Pro Tem. With Parson’s signature, the individual income tax rate most Missourians pay will drop four-tenths of a percent. Combined with another tax cut triggered by increases in revenue collections, the rate will drop from the current 5.9% to 5.4% in January.
A measure passed in 2014 shaves off the tax rate by one-tenth of a percent if revenues rise by $150 million over any of the three previous years. That scenario triggered such reductions in 2018 and 2019 and could further reduce the rate to 5.1% when fully implemented with three more cycles possible before the measure runs its course.
A number of far-reaching tax plans were introduced this year, including one by Republican Senator Bill Eigel of Weldon Spring that was combined with two other bills before being sidelined by GOP leaders who became alarmed over its sheer immensity.
Eigel, who’s proposal even included a hike to the state’s 17 cent gas tax, was present in Springfield for the signing of the Haahr’s bill.
Haahr noted at the gathering that his blueprint originally called for the income tax to be sliced to 5% before compromises downsized the reduction. The tax proposal was the only piece of legislation he filed this year. Haahr said his goal was still to reach the 5% threshold which would establish Missouri as one of the 10 lowest income tax states in the country.
Republican State Treasurer Eric Schmitt, who sponsored the 2014 legislation as a Senator, released a statement Wednesday praising the combination of tax cuts. “For far too long, Missouri’s economy has lagged behind our competitors,” Schmitt said. “Delivering greater tax relief for hardworking Missourians will result in more jobs, more opportunity and a stronger state economy.”
At the bill signing Thursday, Governor Parson indicated the Republican-led legislature would be looking at more ways to reduce taxes in the next year. “I think there’s more opportunities out there to do something for the taxes people pay,” said Parson. “Because once you get the taxes back into peoples’ pockets, as you can see what’s been happening now, it’s been good for the economy.”
An analysis by a non-partisan research group shows the tax cuts will cost the state up to $4 million over the next two fiscal years. Parson said citizens will understand the short-term loss will be offset by much bigger gains in the future. “I think that Missourians have got good common sense,” Parson said. “I think they know a good thing when they see it and I think this is going to be helpful down the road, even more helpful than it is today.”
Democratic state Representative Deb Lavender of Kirkwood says services including healthcare and education are being squeezed so that Republican can cut taxes. “I think people around our state are starting to realize that they are not being invested in,” said Lavender. “Missouri’s not being invested in. And it’s starting to show up nationally in our lack of workforce, in our sick population.”
Another provision in the bill signed by Governor Parson Thursday will implement a larger tax cut for business owners who file their earnings as individual taxpayers. Those filers, who often seek classification as Limited Liability Corporations (LLC’S), were able to deduct 5% from their taxable incomes this year.
That figure will increase to 10% in 2019 and top out at 20% if the same revenue increases that trigger the individual cuts are met. Republicans, including Schmitt, who have authored the business tax reductions have championed them as a needed tax break to give a helping hand to small businesses.
Lavender says the cuts provide wealthy people a pathway to avoid paying taxes. “This is not just small businesses that you and I might think of as a mom and pop that have a street corner that maybe still clear $50,000 to $100,000 for personal salary,” said Lavender. “These can be corporations that are bringing in millions of dollars that are going to be able to benefit from this 20% pass through without any taxes being placed on them.”
Far-reaching tax cuts in neighboring Kansas that eliminated incomes taxes for business owners who filed as individuals proved to be financially untenable for the state and had to be repealed.
Democratic state lawmakers have pointed to Kansas as a deathtrap that Missouri could fall into while Republicans have been quick to say they’re being more responsible by offering less expansive tax cuts that often call for revenue growth before they’re implemented.