Missouri lawmakers are set to gather in Jefferson City this week after Gov. Mike Parson called a special session to cut the state’s income tax rate. Bolstered in part by federal coronavirus relief funds, the 2023 budget is the largest in state history, with $4.9 billion in the state’s general revenue fund.
Legislators are at odds over the governor’s proposal, which would decrease the state’s individual income tax rate from 5.3% to 4.8%. The plan would also increase the standard deduction by up to $2,000 for single filers and $4,000 for married or joint filers.
Democrats in the state legislature are warning against tax cuts, arguing the plan is shortsighted and capitalizes on temporary surpluses due to the federal relief funds. They point to struggling state systems that have historically been underfunded. They also warn of a situation similar to what happened in Kansas after the state slashed individual income taxes under then-Gov. Sam Brownback.
The plan comes after Parson earlier this year vetoed a $500 million plan to issue one-time income tax credit checks of up to $500 to Missourians who make up to $150,000. At the time, Parson said the plan left out tiers of the state’s earners and said he wanted a more permanent solution.
The governor hit the road in August, meeting with lawmakers across the state to pitch them on his plan. On a talk radio show, Parson pointed to Missouri’s low unemployment rate and said the state’s revenues have consistently trended upward.
“They’ve been consistently up to where we can do a tax cut to give back to the people. This is a significant tax cut, the largest one in our state’s history,” Parson said.
External budget analysis faults governor’s plan for income tax cut
For help with designing the cuts, the governor enlisted GOP billionaire megadonor Rex Sinquefield and Art Laffer, an economist who worked on the tax cut plan in Kansas, according to the Missouri Independent. Laffer advised Brownback throughout the Kansas process, which proposed a cut in individual income tax rates from 6.45% to 4.6%.
An analysis of the governor’s plan by the Missouri Budget Project, a nonprofit organization that researches the state’s economic decisions, said the plan would leave out 33% of Missourians with low or fixed incomes.
The group estimated that the proposal would reduce the state’s general revenue by $950 million annually, or nearly 27% of the cost to fully fund the state’s school system.
In a Twitter post, the top Democrat on the House Budget Committee Rep. Peter Merideth of St. Louis said that the state’s budget is not slated to keep up with inflation in a way that will pay for the state’s programs and the governor’s potential income tax cut.
“Republicans now want to spend our one-time surplus… on an expensive permanent tax cut that primarily benefits the wealthy and does literally nothing for the lowest paid workers or seniors on fixed incomes,” he tweeted. “Don’t let them fool you. It’s just one more terrible policy on top of all the rest.”
The analysis found that for the middle 20% of taxpayers, or those making $40,000 to $60,000, the combined impact of the governor’s proposal would save a taxpayer $177 a year. For the state’s top 1%, the cut could save a taxpayer up to $6,024.
The MBP also released a report comparing Missouri’s tax structure to its neighboring states. According to the analysis, the state generated 32.4% of its general revenue fund from individual income tax payments, which the group says is in line with the nationwide average.
Parson has already cut the state’s individual income tax rate. In 2018, he signed legislation to lower the rate from 5.9% to 5.8%. MBP pointed to nationwide numbers showing Missouri’s individual tax rate of 5.3% is lower than 28 other states, including Arkansas, Iowa and Kansas.
Lawmakers were already expected at the Capitol this week for this year’s veto session, which will give the legislature the opportunity to override any vetoes the governor made in 2022. Parson has turned down two requests to hold special sessions so far this year, one from Democrats hoping to clear up confusion and uncertainty about the state’s abortion ban and one to allow lawmakers to discuss legalizing marijuana.
In a statement, House Minority Leader Crystal Quade, D-Springfield, said that passing a permanent income tax cut in a “rushed special session” is a bad idea. Instead, she’d like to see lawmakers simply override the governor’s veto of the one-time income tax check.
“The governor’s plan uses a temporary budget surplus as a cover for a permanent loss of revenue that will put Missouri government back into the financial hole it just climbed out of,” Quade said. “House Democrats are wary of jeopardizing the state’s financial future for politically motivated tax cuts that, as usual, primarily benefit the wealthy.”
Parson also plans to reintroduce a package of agricultural tax cuts that he vetoed in May. He said at the time that he’d like to see the cuts put in place for six years. The bill that lawmakers sent to his desk only authorized cuts for two years.
The package sent by lawmakers would have included incentives for young and urban farmers, meat processors, biodiesel and ethanol producers, among others. The plan was the first piece of legislation to pass in the 2022 session and had bipartisan support.
Tension is still in the air in the Capitol after the legislature adjourned the spring session, which was bogged down by GOP infighting, largely in the Senate. A group of senators who were a part of the now-disbanded “Conservative Caucus” held up much of the lawmaking process this spring amid clashes with Senate leadership and the governor.
In the radio interview, Parson said that if there was a time for lawmakers to pass a tax cut, it is now.
“The way inflation is, you know what we’re looking at,” he said. “This is an opportunity for us to do something once in a lifetime to really give back to Missouri.”
Parson added: “If we can’t get this done, I’ll be honest with you, we all need to pack our bags and go home.”
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