JEFFERSON CITY — Envious of income tax cuts in neighboring states, Missouri's Republican-led House voted Wednesday to slice income taxes for individuals and businesses while imposing a higher sales tax that would fund schools and roads.
The legislation would mark the most significant change to Missouri's tax code in at least a couple of decades. But Democratic Gov. Jay Nixon has voiced opposition to similar versions, citing the potential to shift the tax burden away from corporations and the affluent onto those who can least afford the higher sales tax.
The House passed the legislation by a 90-68 vote, though some members of the Republican supermajority defected to join Democrats in opposition. The bill now must go back to the Senate because the House made changes to a version passed last month in the other chamber.
Republican supporters in both chambers have touted the tax changes as an important counter-move in an ongoing battle for businesses among Missouri and its neighboring states such as Kansas, Oklahoma and Tennessee. Kansas passed an income tax cut last year. Oklahoma, which cut its income taxes over the past couple decades, appears poised to make another reduction this year. And Tennessee doesn't tax individual income.
Missouri's GOP lawmakers asserted that the state hasn't cut its individual income tax rates since 1921.
"We have to do something, or our state is going to lose out," said Rep. Andrew Koenig, R-St. Louis County, who handled the bill.
Legislative researchers project the House plan would eventually reduce state revenues by $438 million annually. The Missouri Budget Project, a St. Louis-based nonprofit that has run ads against the proposed tax changes, estimates that the bill could eventually reduce state revenues by almost $1 billion annually.
Democrats suggested the proposed tax changes would bust the state's budget.
"We're being really irresponsible here," said Rep. Jon Carpenter, D-Kansas City.
Under the House plan, the top individual income tax rate of 6 percent would be cut by two-thirds of a percentage point over five years, so long as state revenues continue to rise by $100 million annually. The corporate income tax would be gradually reduced by three-quarters of a percentage point. And a new 50 percent deduction would be phased in for business income reported on individual income tax returns.
The bill also contains several provisions meant to aid lower-income families and small businesses. It would nearly double the personal deduction on individual income taxes for those with adjusted gross incomes below $20,000 annually. It also would exempt the first $25,000 of corporate income from taxation.
To partially offset that lost revenue, the legislation would gradually increase the state sales tax by three-fifths of a cent, with most of those revenues earmarked to schools and a smaller portion dedicated to state roads and construction of a new mental hospital. Like the income tax cuts, the sales tax increase would take effect only if state revenues continue to rise by at least $100 million annually.
The various tax changes would start in 2014 and be fully implemented in 2018.
The legislation "creates a tax structure that's going to prompt growth and investment in Missouri," said Rep. Todd Richardson, R-Poplar Bluff.
No Republicans spoke against the legislation during a debate that was cut off by GOP leaders after an hour and a half. But 19 Republicans voted against the legislation, leaving it far shy of the 109 votes that would be needed to override a potential gubernatorial veto.
Rep. Denny Hoskins, R-Warrensburg, said in an interview that he voted "no" primarily because of the potential hit on government revenues and services.
"I'm concerned, when we're not fully funding the (school) formula now, how another tax reduction could affect our schools," Hoskins said.
The House bill differs in several ways from the version previously passed by the Senate. For example, the Senate plan had a larger individual income tax cut of three-quarters of a percentage point and a smaller sales tax hike of one-half cent that would have gone to general state revenues instead of being earmarked for specific purposes.
The House version also includes an amnesty period from this August through October that would allow those with overdue Missouri taxes to pay up without penalties or interest. Supporters of that provision hope it can prompt the payment of tens of millions of tax dollars that Missouri might otherwise not collect.