JEFFERSON CITY — A new plan to gradually cut Missouri's income taxes on individuals and businesses is poised to pass the Republican-led Senate as part of an effort to counteract recent income tax cuts in Kansas.
A vote on the tax-cut legislation was expected to occur later Wednesday. Senate Democrats at midnight dropped their opposition in the face of an apparent Republican warning that continued resistance would result in forced votes on additional measures Democrats oppose.
The legislation, which also must go to the House, would mark Missouri's first reduction in income taxes in more than 90 years, if signed into law by Democratic Gov. Jay Nixon. Senate Democrats said they were hopeful that Nixon would veto the measure.
The legislation would gradually reduce the state's top individual income tax rate of 6 percent to 5.5 percent over the next 10 years. It also would phase in a 50 percent deduction for business income reported on individual tax returns over the next five years. And it would gradually reduce Missouri's corporate income tax rate of 6.25 percent to 3.25 percent over the next decade.
Unlike previous tax cut plans endorsed by the Senate and House, the new proposal includes no sales tax increase to help offset the lost income tax revenues. That's because Nixon has opposed a sales tax hike. The new plan also contains a contingency clause making the main incremental tax cuts effective only if state revenues continue to rise.
"I believe it is going to work. I believe it is going to create more jobs and create more revenue for the state," said Sen. Will Kraus, R-Lee's Summit, who proposed the plan.
Missouri lawmakers are looking to keep pace with Kansas— or at least not fall too far behind — in an ongoing battle for businesses in border communities such as Kansas City, St. Joseph and Joplin.
Kansas lawmakers last year passed a measure that reduced individual income taxes, increased standard deductions and exempted the owners of 191,000 partnerships, sole proprietorships and other businesses from income taxes. But that led to projected budget gaps. So Kansas Gov. Sam Brownback now is pushing legislators to cancel a scheduled sales tax cut in order to avoid budget shortfalls over the next five years that he says could necessitate cuts to higher education funding.
Missouri Republicans said their plan isn't as aggressive as the one in Kansas. And Sen. John Lamping, R-St. Louis County, said it is "dramatically watered down" from previous versions that included a three-quarters or two-thirds of a percentage point reduction in income taxes phased in over a shorter time.
Republicans touted an analysis by legislative researchers estimating the bill could reduce state revenues by more than $500 million annually when fully implemented. Democrats cited an eventual annual reduction of more than $800 million estimated by the nonprofit Missouri Budget Project, which opposes the plan.
Democrats argued that Missouri should wait to see what happens in Kansas and warned that an income tax reduction could lead to deep budget cuts down the road.
"We aren't going to be able to fund things like schools, roads and everything else," said Sen. Paul LeVota, D-Independence.
Democrats spoke against the legislation for six hours Tuesday night. Senate Minority Leader Jolie Justus, D-Kansas City, said they decided to stop after Republican leaders threatened to force a vote on voter photo identification legislation and other measures Democrats oppose.
While the tax-cut bill would forgo some future revenues, an actual decline in state revenues is not likely. That's because the legislation would make each annual cut in corporate and individual income taxes effective only if revenues grow by at least $100 million over the state's highest general revenue point in the previous three years.
The revenue-growth contingency would not apply to the five-year phase-in for the 50 percent deduction on business income reported on individual tax returns.
There also is no contingency on a provision that would increase Missouri's existing $2,100 personal deduction on income taxes by $1,000 for individuals who earn less than $20,000 of adjusted gross income.
Other sections of the legislation are intended to generate revenues by increase tax collections from online sales and giving an incentive for overdue taxpayers to finally pay up. The bill would create a three-month tax amnesty period in which penalties and interest would be waived. That provision, which is backed by Nixon, is projected to generate tens of millions of dollars of tax payments. Some Republicans said they were philosophically opposed to cutting deals with tax avoiders but agreed to the provision in an attempt to make the income tax cut more appealing to objectors.