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Missouri House approves income tax rate cut, but not for corporations

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Missouri State Capitol in Jefferson City

The Missouri State Capitol building in Jefferson City as seen on Thursday, Jan. 6, 2022. Photo by David Carson, dcarson@post-dispatch.com

Taxing question: Missouri's Legislature is considering a reduction in the state's income tax rate. David Nicklaus thinks the cut will help the state's economy, but Jim Gallagher argues that Missouri should first spend money to shore up basic public services.

JEFFERSON CITY — The Missouri House on Thursday approved a cut in individual income tax rates, sending the measure to Gov. Mike Parson’s desk.

The vote came after Parson slammed the door on a proposal to also eliminate Missouri’s tax on businesses.

Minutes before members of the House were set to begin debate on a corporate tax cut that could cost the state $1 billion in revenue, the Republican governor issued a statement saying the issue should instead be dealt with during the Legislature’s regular session, which runs from January to May.

“While these are important issues that merit discussion, they would be better addressed during regular session,” Parson spokeswoman Kelli Jones said. “Governor Parson will not expand his special session call to include corporate tax cuts.”

Parson’s statement set off a scramble among Republican leaders in the House who then moved to strip the corporate tax reduction from a bill they were poised to begin debating as part of a special session called by the governor.

The House then voted 98-32 to approve the Senate version of an individual income tax rate reduction that will drain an estimated $1 billion from state coffers once fully implemented.

“We are in a situation where, due to a variety of reasons, we have an unprecedented budget balance. We still have an excessive amount of revenue left over,” said Rep. Cody Smith, R-Carthage, who chairs the powerful House Budget Committee.

Parson said he was “thrilled” by the vote.

“Today’s action will provide real relief to taxpaying Missourians. Relief that is even more critical now as Missouri families face rising grocery bills, high gas prices, and record inflation,” the governor said.

Democrats bemoaned the final product, saying it will provide more benefits to the wealthy.

“It doesn’t do much for working-class folks,” said Rep. Peter Merideth, D-St. Louis. “This is bad fiscal policy.”

“We’re here because the election is about 40 days away,” added House Minority Leader Crystal Quade, D-Springfield.

Among Democrats voting in favor of the tax cut was Rep. Tracy McCreery, D-Olivette, who is running for a seat in the state Senate.

“I do support tax relief for working families,” McCreery said after the vote. “This bill certainly isn’t perfect, but it’s better than some of the extreme ideas that were put out there.”

Lawmakers have been meeting this month to debate a plan to cut the individual income tax rate and extend tax breaks for agriculture businesses after Parson called them into special session.

The state currently has a budget surplus of over $4 billion thanks to inflation and $10 billion in federal pandemic aid.

The legislation reduces the state’s income tax rate from 5.3% to 4.5% if certain revenue figures are met.

When the measure arrived in the House, Smith tacked on a provision to the Senate bill that would phase out the corporate tax rate over a period of years.

But Parson, a day later, torpedoed the effort.

“Governor Parson’s income tax cut plan is simple and straightforward in its goal to cut taxes for all taxpaying Missourians,” Jones said. “The Governor looks forward to signing agriculture support and income tax cut legislation into law as soon as the bills clear the General Assembly.”

Under the initial House plan, corporate income taxes would have dropped from the current 4% rate to 2% beginning next year. It would then allow for gradual cuts to the tax until it’s completely eliminated.

Supporters said cutting corporate income taxes will attract new business and allow Missouri companies to pay higher wages and invest more in their businesses.

Democrats say the state should instead spend more money on higher pay for state employees. Although workers received a 7.5% salary bump this year, there is still high turnover and thousands of vacancies across the administration, resulting in a reduction in services at social service agencies.

“We can’t provide services to the folks that need mental health care,” Merideth said.

Smith said the income tax cut would help boost the state’s economy.

“Low taxation leads to economic prosperity,” Smith said.

The special session is not over, however. Both chambers have approved identical packages of tax incentives for agriculture businesses. One will have to reconvene to vote on the proposal.

The legislation is Senate Bill 3.

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