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Four things to know about Missouri's tax cut

Tuesday, May 6, 2014 | 2:18 p.m. CDT; updated 3:44 p.m. CDT, Tuesday, May 6, 2014

JEFFERSON CITY — Who wins with Tuesday's vote to give Missouri its first cut in income tax rates in nearly a century?

As always, the answer depends on whom you ask.

Missouri's Republicans who overrode Gov. Jay Nixon's veto of the tax cut bill say the cut will spur economic growth by making it easier for companies to do business in the state.

Nixon says the cut will benefit the wealthy while annually punching a huge hole in the budget — and that education will bear much of the cost.

Before you start planning on an annual bump in your state tax refund, here are four things to know about the cut:

WHAT THE LAW DOES: The bill is designed to gradually reduce Missouri's top individual income tax rate — currently charged on all income over $9,000 — from 6 percent to 5.5 percent. It also phases in a new 25 percent deduction for business income reported on personal tax returns. Each incremental cut would occur only if state revenues grow by at least $150 million over their high mark from the previous three years.

WHO GETS THE CUT: The tax cuts could benefit about 2.5 million people and families, with the wealthiest standing to gain the most, and would provide an extra boost to hundreds of thousands of people involved in business partnerships, limited liability corporations or their own ventures. The state Department of Revenue projects a married family of four earning $44,000 annually would get a tax cut of $32 once the law is fully in effect.

SLOWLY, BUT NOT SURELY: Tax cuts won't begin until 2017, and even then the reductions will be phased in — so long as state revenues grow by at least $150 million over their high mark from the previous three years. Under the bill, the soonest the tax cuts could be fully phased in is 2021, meaning their effect would be felt on taxes due in April 2022.

History suggests the cuts will be anything but a sure thing. Had the law's criterion been in place during the past decade, the tax cut would have occurred in half of the years. Over the past four decades, the cut would have been triggered in 20 years, but not in 16, according to an Associated Press analysis of historical state revenue figures.

For instance, under this law, a revenue increase in the 2008 fiscal year would have caused a tax cut to occur in 2009 as state revenues plummeted as a result of the recession.

WHAT THE EXPERTS SAY: MU economists estimate the tax cut will eventually reduce state revenues by $620 million annually. Republicans insist the cuts will fuel expansion, help Missouri compete with its tax-cutting neighbors and create new revenue. Nixon says the cost could be far higher, even claiming language in the bill could be interpreted to eliminate taxes on all income over $9,000. Republicans have called the claims "absurd."


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