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Tax cut debate moves to Missouri House after Senate approves bill

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Gov. Parson delivers the State of the State address

Gov. Mike Parson delivers the State of the State address in the Senate chambers of the Missouri State Capitol Building on Wednesday, Jan. 27, 2021. The speech was moved from the House chambers over coronavirus concerns. Photo by Colter Peterson, cpeterson@post-dispatch.com

JEFFERSON CITY — An election-year income tax cut plan will take center stage in the Missouri House next week after the Senate signed off on a proposal Wednesday to phase in lower rates over the next five years.

On a 24-4 vote, the Senate approved legislation that will reduce the top state income tax rate of 5.3% to 4.95% beginning next year. If state revenues continue to grow at a steady clip, the rate would fall to 4.5% when the measure is fully implemented in five years.

“I believe we have a good responsible package,” said Sen. Lincoln Hough, R-Springfield, who sponsored the legislation.

The four “no” votes came from Democrats, including Sens. Jill Schupp of Creve Coeur, Brian Williams of University City and Angela Mosley of Florissant.

Williams said the state needs to do more to help the social service safety net, which is fraying under the weight of low worker pay.

“I think the conversation was focused on the wrong thing,” Williams said.

For taxpayers earning $52,000 annually, the change will result in a $66 reduction in their income tax bill. For someone earning $86,000, the reduction would be $143, according to an analysis by the Missouri Budget Project.

None of the yearly, phased-in reductions in the tax rate will happen if overall state revenue doesn’t grow by $175 million in the first year. Starting in 2025, the reductions won’t happen unless revenue grows by at least $200 million.

Hough said those revenue triggers will serve as guardrails to ensure the state doesn’t get caught short in an economic downturn.

Gov. Mike Parson, a Republican, called for the Legislature to return to the Capitol to act on a tax cut, as well as a package of taxpayer-backed financial incentives for the agriculture industry. He contends the state can afford a reduction in its biggest revenue generating tax because of the state’s current surplus of revenue.

The state’s general checkbook had $4.4 billion on Aug. 30 and growth so far in the current fiscal year is almost 24%, up from a projected growth rate of 2.1%.

But, the state also has received nearly $10 billion from the federal government for the response to the pandemic, raising questions among Democrats about whether the state was squandering one-time money.

In the House, lawmakers are expected to begin debating the nearly $1 billion Senate plan in a committee hearing next week.

Democrats in the chamber are expected to raise objections.

“The state’s temporary revenue surplus masks years of budgetary neglect that’s resulted in a state government that’s barely functional in some respects and outright failing in others. This irresponsible legislation will have devastating long-term consequences for Missouri government,” said House Minority Leader Crystal Quade, D-Springfield.

Also pending in the special session is a $40 million package of incentives for agriculture, affecting meatpackers, biofuels manufacturers and young farmers.

Parson vetoed a bill in June, saying he wanted the incentives to run for six years, not the two years approved by lawmakers.

The measure advanced in the House Wednesday on a 83-28 vote.

Rep. Tony Lovasco, a St. Charles County Republican, said the incentives are a giveaway to farmers and agriculture-related businesses.

“Government works best when government stays out of the way,” Lovasco said.

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