This week, we saw some activity on SCS SB 509 & 496, a tax cut bill in the Missouri Senate.
This bill, as approved by the Senate Ways and Means Committee, was a combination of Senator Eric Schmitt’s SB 496 that contained AIM’s business income deduction for flow-through entities and Senator Will Kraus’ SB 509 (originally a 1% cut in individual income tax plus 50% business income deduction over 10 years of $100m+ growth, exemption of first $25,000 of C corporation income, additional personal exemption for individuals with less than $20,000 in MAGI).
Following a long pause in activity Senator Kraus again brought the bill before the full Senate for debate on March 5.
Senator Kraus offered a substitute bill that contained many of Governor Nixon’s requirements for a tax bill that were detailed in a recent press release. Sen. Kraus added a flow-through business income deduction that would be effective only if tax credit limits were placed on low income housing and historic preservation tax credits.
The first part of the tax cut requires a growth of $200 million over the highest amount of General Revenue collected over the previous three years and full funding of the education foundation formula. The tax cut would be for individual income tax only and would be a .25% rate cut.
If the tax credits are capped (low income at $110m and historic at $90m), the individual income tax rate would be further reduced by .15% (for a total reduction of .4%) and a business income deduction would be allowed for the first $100,000 in income from specific lines on individual returns. The bill did not actually cap the tax credits.
Neither would affect the corporation income tax rates at all.
There was much debate and little consensus on the plan. Some Democrat senators argued against the idea of cutting taxes and argued the state needed all the money it could get. Another Democrat senator denounced the governor’s demands and declared, “He is not the 35th Senator.”
Some Republicans did not appear to be supportive of the plan either. Senator Schmitt took issue with many of the governor’s requirements that were included in Kraus’ substitute bill, while Senator Schaefer argued that the Senate should not include any contingency requirements at all. Here is a link to a video of Senator Schaefer’s statement.
Eventually, Senator Schmitt offered an amendment to the bill that would move the top individual income tax rate bracket down from $9,000 in taxable income to $8,000 and lower the top rate to 5.5% from the current 6%, effective with the 2015 tax year. The amendment would further reduce the rate beginning in tax year 2016 if the general revenue collections exceed the highest collections of the previous 3 years by at least $100 million. The amount of the cut would be dependent on the amount of the increased revenues. The rate would be cut 1/10% for each $100 million in excess revenue. The lowest the top rate would be 5% under this amendment.
Then, Senator Schmitt assured he would have control over the bill by filing an amendment to this amendment. Under the rules of the Senate, he now controls the bill until his amendment to the amendment, or the underlying substitute, is acted upon or withdrawn. The amendment to the amendment would use the same methodology, but would allow the top rate to be reduced to 4% over a period of time.
Senator Kraus placed the bill on the informal calendar. It may be taken up again at any time. You may see copies of the actual language of the Senate Substitute and the two amendments by Senator Schmitt by clicking here.
Also, Senator Kraus posted a committee hearing for another tax bill he sponsored, SB 858, for Thursday, March 13, at 8:30 a.m. This bill would be submitted to a vote of the people, bypassing the Governor. This bill contains a 1% cut to the individual rate over 10 years of $100 million growth in GR and a 50% business income deduction over five years of such growth, along with an additional exemption for MAGI less than $20,000. No corporation tax relief is included in this bill.
Be sure to listen to our Monday morning legislative webinars for more information on this and other hot issues affecting your business. If you are not yet registered for those webinars, contact Dick Aldrich at daldrich@aimo.com or by calling 573-634-2246. They are free to AIM members, but you must be an AIM member to participate.