Missouri appears on track for income-tax cuts
Associated Industries of Missouri was the original driving force behind the tax cut when AIM President and CEO Ray McCarty drafted and eventually the legislature passed the business income deduction in 2014. The idea started with a conversation between McCarty and one of AIM’s members, Bennett Packaging of Kansas City. This is a huge accomplishment for AIM and benefits nearly all taxpayers – the first income tax cut in nearly one hundred years.
Data from state budget director Dan Haug show net general revenue hit more than $9 billion during the fiscal year that ended Saturday, a roughly 2.6 percent increase compared to the year before.
Office of Administration spokeswoman Ryan Burns said officials are reviewing whether the trigger was reached.
Missouri House Budget Committee chairman Scott Fitzpatrick said it’s “most likely” tax cuts will be triggered, although he said he’s also waiting on final confirmation.
If it does, it will mean tax rates will drop for those who fall in the highest tax bracket. In 2016, anyone who made more than $9,000 in taxable income fell under the top bracket for a 6 percent tax rate.
“It was designed to benefit every Missourian a little bit,” Fitzpatrick said, adding he’s hopeful another provision that calls for business deductions will spur small businesses.
Meeting revenue growth thresholds will trigger a 5 percent deduction for business income reported on individual income tax returns, and more cuts could take effect if revenue continues to grow by at least $150 million over their high mark from the previous three years. Individual income taxes could drop to as low as 5.5 percent, and business deductions could reach as much as 25 percent.
Missouri lawmakers in 2014 passed the tax cuts after overriding a veto from former Democratic governor Jay Nixon, who denounced the measure as fiscally irresponsible and warned it could lead to tax cuts even in the midst of a recession. AIM argued the revenue growth requirement assures the tax cuts are paid for through growth that has already occurred.
Republican supporters at the time said it would spur the economy and noted it includes safeguards to protect the state’s budget.
Missouri’s tax cut is a more responsible and less aggressive version of measures enacted in 2012 and 2013 in Kansas, which lowered its top tax rate and fully exempted certain categories of businesses from taxes. The state had been facing a budget hole of $889 million through June 2019 before Kansas legislators this year largely rolled back those cuts, which came to be known as the Kansas experiment.
“The tax cut we enacted in Missouri leaves nothing to chance because we are simply sharing the growth in tax revenues with the businesses and individuals that paid the taxes in the first place,” said McCarty. “Our plan pays for itself before the tax cuts are enacted and our cuts are much more modest, but beneficial nonetheless.”