Mo. House passes bill cutting income tax and raising sales tax

The sponsor, Rep. Andrew Koenig, R-St. Louis County, said the package of tax changes would help Missouri compete with states like Oklahoma and Kansas, which have reduced their income tax rates.

“This bill would move our state forward,” he said. “If we want Missouri to remain competitive we need to reduce our income tax.”

Opponents said the bill would cost state coffers hundreds of millions of dollars, spurring budget cuts when the state is unable to adequately fund public schools and other services now.

“I’m pretty sure most Mizzou alums would rather lead than follow any state, especially Kansas,” said Rep. Courtney Curtis, D-Berkeley.

The House passed the bill on a vote of 90-68, which was far less than the 109-vote majority needed to override a veto of Democratic Gov. Jay Nixon. The governor has criticized an earlier version of the bill, saying it would favor corporations and hurt working families and seniors on fixed incomes.

The bill now returns to the Senate, which passed a different tax bill. Unless the Senate accepts the House version, a compromise must be worked out by a conference committee.

A fiscal note prepared by legislative staffers estimates the House bill would cost the state $438 million annually when fully implemented in 2019. There’s a caveat: the tax changes wouldn’t take effect unless state revenue collections grew by at least $100 million over the prior year.

An analysis by the Missouri Budget Project, which advocates for low- and moderate-income people, put the bill’s price tag as high as $986 million.

In its main provisions, the House plan would reduce the state’s income tax – for individuals and businesses --- over five years while increasing the state’s sales tax by three-fifths of a percent.

The first two-tenths of a percent increase in the sales tax would be dedicated to funding a new mental hospital in Fulton. Up to $200 million could go toward replacing the current dilapidated facility. After that, the state road fund would get the dedicated money.

Under an amendment added Wednesday, the state schools fund also would get part of the money raised by the sales tax increase. But that wouldn't prevent legislators from reducing state general revenue that now goes to schools.

There would be a decrease to state general revenue because of the income tax cuts.

The top personal income tax rate would drop by two-thirds of a percent over five years. When fully implemented in 2018, people with taxable income of more than $8,000 would be taxed at the top rate of 5 1/3 percent, though the bill provides that the rate could drop further, to 5 percent, if federal legislation passes allowing states to tax online sales.

The bill also has several tax cuts tailored for businesses. The corporate rate would drop by three-quarters of a percent, lowering the tax rate to 5.5 percent when fully implemented. The first $25,000 of corporate income would be exempted from taxation.

Also, half of business income reported on owners’ personal returns would be exempted. For individuals, the bill would nearly double a deduction that goes to those with adjusted gross income of less than $20,000.

The plan would attempt to collect more taxes on Internet sales and from out-of-state companies that sell products to Missourians.

Part of the momentum for the income tax cut comes from western Missouri, where officials are worried about losing businesses to Kansas.

Kansas eliminated state income taxes for roughly 190,000 small businesses that are set up as limited liability corporations, S-corporations, partnersh8ps and sole proprietorships.

Kansas also lowered individual income tax rates. Three tax brackets were collapsed into two and the top rate was reduced to 4.9 percent. The lowest rate is now 3 percent.