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40th Representative Jim Hansen’s Capitol Report

Tax Cut Legislation Sent to Governor’s Desk (SBs 509 & 496)

This week the Missouri House gave final approval to legislation that would reduce the state income tax for the first time in nearly a century. When fully phased in the bill would reduce the tax burden for Missouri families and businesses by more than $600 million each year.

The bill is similar to a tax cut plan approved by the legislature last year that was vetoed by the governor, who felt a reduction in taxes would jeopardize funding for education. Supporters say this year’s version addresses the governor’s concerns by calling for a smaller cut with more safeguards. For instance, last year’s bill would have allowed a 50 percent income tax deduction for business income while this year’s version implements only a 25 percent deduction. In addition, the version approved by the House this year would require revenues to increase by at least $150 million for each phase of the cut to be implemented.  Last year’s bill required revenues to increase by only $100 million or more.

The plan would cut the top income tax rate from 6 percent to 5.5 percent over a period of years depending on increases to general revenue. It also would phase in the 25 percent tax exemption for Missouri business income in 5 percent increments. For low income Missourians who make $20,000 or less, the bill would increase the exemption for personal income taxes from $2,100 to $2,600. In addition, the bill would require that the brackets for individual income tax be adjusted annually for the percent increase in inflation. If the bill becomes law, the tax cuts would begin being implemented in 2017.

Supporters say the bill now being considered by the governor provides a responsible, well-reasoned approach to reducing the tax burden for more than 2 million Missouri families and individuals. They say that concerns about the tax cut’s impact on education funding are addressed by requiring revenues to increase each year and by the delay until 2017 to put the cuts into effect. They also say a tax cut will drive revenues up as more businesses come to Missouri and existing businesses use the dollars they are allowed to keep to grow and expand.

While the legislature has given the tax cut plan final approval it seems likely that the debate on this issue will continue the next few weeks as the governor decides whether to sign or veto the bill. Early indications are that he will veto the legislation, which will then give the General Assembly the opportunity to override the veto. As you may recall, the legislature failed in its efforts to override the governor’s veto of the tax cut that was approved last year. Supporters of the tax cut feel they are in a much better position to successfully override a potential veto this year. The coming weeks will be interesting to watch as we wait to see what happens.


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