JEFFERSON CITY — A Missouri House committee advanced two proposals Tuesday for cutting state income taxes — one saving money only for businesses and the other spreading tax cuts to both individuals and employers.
Either of the bills endorsed by the House Ways and Means Committee is projected to reduce Missouri's revenues by hundreds of millions of dollars annually, setting up a potential conflict with Gov. Jay Nixon, who has warned that large tax cuts could jeopardize funding for public schools.
The Democratic governor vetoed an income tax cut bill last year and has reiterated his concerns this year. But the Republican-led legislature has again made an income tax cut a priority for 2014.
"My preference is to just keep sending him bills," said House Ways and Means Committee Chairman Andrew Koenig, a Republican from suburban St. Louis. "If he wants to keep vetoing them, that's what he can do."
Koenig's preferred bill would cut income tax rates for both individuals and some businesses, which he estimated would reduce state revenues by around $700 million annually when fully implemented.
Starting in 2015, the legislation would gradually reduce Missouri's top individual income tax rate from 6 percent to 5.3 percent and phase in a 50 percent deduction for business income reported on individual tax returns. But those incremental tax cuts would take effect only if Missouri's annual tax revenues continue to grow by $100 million over their highest point in the previous three years.
The legislation also would increase the current tax deduction for lower-income individuals, without regard to whether state tax revenues keep growing.
A bill endorsed last week by the Senate Ways and Means Committee included many similar provisions, but would cut the individual income tax rate further, to 5 percent.
Democratic legislators have generally opposed the measures, echoing Nixon's concerns about the potential drain on state revenues available for education and other state services.
"I do understand there is an interest in cutting back taxes and making us a more viable state for businesses," said Rep. Margo McNeil, a Democrat from suburban St. Louis. But "our need is very great, particularly in our urban areas where we have unaccredited schools."
The House committee also endorsed an alternative bill that would cut taxes only for businesses. That proposal includes a similar 50 percent deduction for business income reported on individual returns, as well as a gradual 50 percent reduction in the corporate income tax rate starting this year. Those incremental tax cuts would continue so long as state income tax revenues remain above their 2012 level. But businesses that pay employees 150 percent of the county's average wage could claim the full tax cut immediately without waiting on the multiyear phase in.
Legislative researchers estimate the tax cuts could reduce state revenues by up to $347 million annually.
The sponsor of that bill, Rep. T. J. Berry, R-Kearney, has said that an income tax cut targeted at businesses could provide a greater boost to the economy, because it would give employers more money to hire people or expand their operations.