Wide-Ranging Tax Cut Proposal (Senate Bill 26)

For the first time in decades our state’s tax code would undergo a significant change under a proposal approved by the House this week. Most importantly, it is a change that would mean a lower tax burden for Missouri families and businesses.

The legislation would phase in an income tax reduction over a period of five years that would take our maximum income tax rate from 6 percent to 5.33 percent. Over the same period of time, the corporate income tax would be reduced by three-quarters of a percentage point. The bill also contains provisions to help lower income families. For individuals making less than $20,000 per year, the bill would increase the personal deduction in income tax from $2,100 to $4,100. The bill would aid small businesses by exempting the first $25,000 of corporate income from taxation.

At the same time the bill would reduce the income tax burden on all Missourians, it would slowly increase the state sales tax by three-fifths of a cent. The new revenue generated by this slight bump in the sales tax would then be dedicated to funding for our schools, as well as a smaller portion going to road improvement projects.

The idea with these tax cuts is to put more money in your pocket and less in government coffers. We have seen our neighboring states like Kansas and Oklahoma implement similar cuts to great effect. Now, as we try to compete with these states for new employers, it is important that we have the kind of low tax burden businesses look for when deciding where to set up shop.

While some have raised concerns that the lowered tax rate will reduce state revenues too drastically, we have seen in other states that revenues actually increase after taxes are cut. However, the bill does include an important safeguard to ensure revenues are going up instead of down. The phase in of the income tax reduction and the sales tax increase would only occur if revenues continue to rise by at least $100 million each year. With this, we can be certain that the changes to our tax code only occur as long as they are actually helping our economy to grow.

The bill will now go back to the Senate where they can choose to either pass it as it currently stands, or ask for a conference with the House where we will iron out any differences we may have. It’s important to note the bill also contains a tax amnesty provision that would allow thousands of Missourians to pay overdue taxes without penalty or interest from August through October of this year. The provision is one that could raise tens of millions of dollars and also one the governor requested as part of his plan to balance the budget this year. We will have to see how the idea fares in the Missouri Senate.

To monitor SB 26, please click on the following link:

http://www.senate.mo.gov/13info/BTS_Web/Bill.aspx?SessionType=R&BillID=16944752