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Missouri’s newest tax cut will help the wealthy, but provide little for middle-income families

Mike Parson State of the State
Tim Bommel
/
Missouri House Communications
Missouri Gov. Mike Parson during his State of the State address on Jan. 19, 2022

Independent analysis from the Missouri Budget Project found that, by the time the state's new tax plan is fully in place, the middle 20% of earners would save just $131 a yea on average, while the top 1% would be saving over $9,500.

If you make $55,000 a year, you can look forward to an extra $66 a year — enough to buy yourself a fancy new candle or dinner for two, without drinks, thanks to a new income tax rate plan passed by the Missouri legislature last week.

Higher income earners, like those making $550,000 a year, will be looking at an additional $4,200 — maybe airfare to Santorini for two.

Missouri’s latest tax cut will reward many residents with slightly lower tax bills in coming years, with the state’s wealthiest residents seeing the largest returns. The plan will cut income tax rates from 2022’s 5.3% to 4.95% in its first year, but Missourians who are on a fixed income, like Social Security, won’t see the savings. It also exempts the first $1,000 of income from being taxed.

Legislators passed the income tax plan after Gov. Mike Parson called a special session to address the tax rate and agricultural tax credits in the face of a $4.9 billion budget surplus for 2023. Lawmakers nearly passed a corporate income tax cut as well, but that plan was left behind.

According to the Missouri Budget Project, an independent budget analysis group, middle-income families making $52,000 a year will see about $5.50 in savings each month at the beginning of the change. The governor’s office stated that the new plan, once it is fully in place, will reduce state income by a maximum of $764 million a year. 

The group says that for the middle 20% of earners, those making anywhere from $40,000 to $66,000 a year, savings in the first year of the plan would be around $66 a year. For the top 1% in the state, those earning more than $552,000, savings could reach $4,214 a year.

Rates will gradually continue to reduce year by year by 0.15 percentage point in the first year and by 0.1 percentage point in the years following, until they hit 4.5%, according to the bill, but will only go into place if the state’s net general revenue continues to grow.

By the time the plan is fully in place, the middle 20% of earners would be saving on average $131 a year, while the top 1% would be saving over $9,500.

When discussing the bill, Republican House budget committee Chairman Rep. Cody Smith of Carthage said that in recent years “we are doing more for low-income people than we ever have in the history of the world.”

Parson pointed to the surplus, which came in part from inflation and pandemic-related federal funds flowing into the state, as the reason why 2023 was the year to enact a more robust individual tax cut. Lawmakers looked into the idea of providing income-tax paying Missourians with a one-time tax credit of $500, but Parson vetoed the bill.

Critics of the plan, like the Missouri Budget Project, say the plan’s benefits “are heavily skewed to the wealthiest, and leave out many working families and older adults on fixed incomes.”

For those in the state’s lowest 20% of income earners, savings for one year would be $3. The plan does not provide any savings for those on fixed incomes.

Republican Rep. Bill Kidd of eastern Jackson County, who is leaving office due to term limits, asked lawmakers to consider a different way to provide help to low-income Missourians and those on fixed incomes in next year’s session.

“If you’re a low-bracket income earner, or you’re a fixed-income earner, this tax cut really isn’t going to do much for you at all. That’s the truth,” he said during floor discussion. “Please do something that will impact real people… If you are in the $100,000 to $200,000 range you are going to like this tax cut. But if you are a poor person or a person on a fixed income, this doesn’t do it.”

Missouri Budget Project president and CEO Amy Blouin pointed to the state’s low-ranked programs as a reason why the cuts could put the state in trouble down the road.

“It’s going to reduce our state revenues significantly, which is going to have a negative impact on all of the services that everybody relies on,” Blouin said. “So it’s going to negatively impact everybody when it’s fully implemented.”

Blouin said although the budget is in good shape for fiscal year 2023, aspects of the state budget are failing Missourians. She pointed to Missouri’s ranking as 49th for funding of public schools in 2021 and chronic understaffing and turnover in the Children’s Division as examples.

“We’ve got huge vacancies not only in the Children’s Division, but in other departments as well. And that means we’ve got more chaos and less in terms of streamlined access to services,” she said. “It’s almost every indicator across the board. We’re low. This is before those reductions are implemented, so it’s only going to get worse.”

Critics of the plan, including Democrats in the state legislature, pointed to tax cuts that happened in Kansas under the leadership of then-Gov. Sam Brownback. Under Brownback’s version, the state’s individual income tax was reduced at once, not over time like Missouri’s, and a pass-through exemption was included for some of the state’s corporations.

Those cuts were intended to boost economic growth, but instead led to a quickly declining state revenue. The Republican-led legislature eventually had to reverse those cuts, deeming them a failure.

In making his original proposal, Parson consulted with Art Laffer, who was a major architect of the Kansas plan, according to the Missouri Independent. Though Brownback’s version of tax cuts was more draconian than what was considered in Missouri, some lawmakers referenced the Kansas experiment during debate.

Rep. Patty Lewis, a Kansas City Democrat, pointed to the economic struggles Kansas has seen as a result of the cuts.

“This is a reality that we’re faced with,” Lewis said during floor discussion on the bill last week. “Our neighbors to the west have been suffering from the Brownback days. That is why they have a Democratic governor after the Brownback days, and they are still now trying to recover from those massive tax cuts.”

If Missouri needed to walk back its latest cuts, a reversal from the legislature wouldn’t be possible, thanks to a provision in the state constitution called the Hancock Amendment, which prevents legislators from raising taxes without a public vote.

Lawmakers are still finalizing details of agricultural tax credits. Then both bills will be sent to the governor for his signature.

This story was originally published on the Kansas City Beacon, a fellow member of the KC Media Collective.

Meg Cunningham is The Beacon’s Missouri Statehouse reporter.
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