JEFFERSON CITY — Despite concerns from the Democratic governor, Missouri's Republican-led legislature passed an income tax cut Tuesday that could reduce state tax revenues by hundreds of millions of dollars annually.
Missouri's top individual income tax rate would be cut for the first time in almost a century, benefiting more than 2 million taxpayers. The legislation, which would be phased in starting in 2017, also would provide a new deduction for business income that's reported on personal tax returns, benefiting thousands of small businesses.
Other provisions would expand tax deductions for low-income individuals and require the state's income tax brackets to be adjusted annually for inflation, likely resulting in yearly tax cuts for the indefinite future.
The Senate's 23-9 party-line vote sends the measure to the House, which already has passed two alternative income tax cut plans. The two chambers have until the mid-May end of the session to agree on a plan.
Legislative researchers estimate the tax cuts could eventually cost more than $620 million annually in state revenues. But the Missouri Budget Project, a St. Louis nonprofit group that analyzes fiscal issues with an eye on how they affect the poor, estimates it could cost $800 million a year when fully implemented.
Gov. Jay Nixon, who vetoed an even more expansive tax cut last year, has said the Senate bill "would permanently undermine Missouri's ability to support K-12 and higher education."
"It's just not the time to be doing these risky fiscal experiments," Nixon said Tuesday at a Capitol rally of child advocates.
But Republicans pointed to triggers in the bill that would ensure the state's coffers will grow before the incremental tax cuts can kick in. They contend a tax cut could aid the economy and is essential to remain competitive with neighbors such as Kansas, which have enacted even larger cuts in income taxes.
"I believe if you give the taxpayer more dollars, they're probably going to go out to eat or do something with that money — buy a gift for a family member," said bill sponsor, Sen. Will Kraus, R- Lee's Summit.
The Senate legislation would gradually cut the top individual income tax rate to 5.5 percent from the current 6 percent and phase in a 25 percent deduction for business income reported on personal tax returns. Those tax cuts would occur only if state revenues grow by at least $150 million over the high mark of the previous three years.
The bill also would provide an additional $500 tax deduction on top of the state's current $2,100 deduction for residents with incomes below $20,000.
The legislation vetoed last year by Nixon included a similar reduction in the top individual income tax rate but a larger tax break for businesses and lower-income individuals and a smaller revenue-growth trigger. It was considerably more complex, because it also included provisions that would have required additional state income tax cuts if Congress passed a law allowing states to more easily collect sales tax on online purchases.
Nixon has said he would sign an individual income tax cut this year only if it is contingent on full funding for public schools, new curbs on existing tax credits for developers of low-income housing and historic buildings, as well as continued state revenue growth of $200 million annually. None of those things are in the Senate bill.
Democratic Sen. Paul LeVota said Republicans were "playing an election-year game" to get Nixon to veto the legislation and then try to override him later this year.
"We're just back where we started doing the exact same massive tax cut that will hurt our revenues," said LeVota, of Independence.