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Mo. Senate Endorses New Income Tax Cut Plan

David A. Lieb / Associated Press
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Photo: UPI/Bill Greenblatt

Photo: UPI/Bill Greenblatt

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JEFFERSON CITY, Mo. (AP) - Missouri’s Republican-led Senate endorsed an income tax cut plan Wednesday that could eventually waive a little less than $500 million of revenues annually, an amount about half the size as originally proposed with a later effective date.

Republicans, and even some Democrats, described the plan as a more moderate tax cut. Yet it still doesn’t include all of the contingencies that Democratic Gov. Jay Nixon has said would be necessary to avoid his veto pen.

Legislative leaders have made an income tax cut a priority in 2014, after they were unable to override Nixon’s veto of their first attempt last year. Nixon has expressed concerns that a tax cut could drain money for schools and other state services.

Republican lawmakers have pointed to recently enacted tax cuts by Missouri’s neighbors, particularly by Kansas.

“We’re falling behind other states. We’ve got to do something to be more competitive,” said Sen. Will Kraus, a Republican from Lee’s Summit who is sponsoring the legislation.

The bill could gradually cut the state’s top individual income tax rate to 5.5 percent from the current 6 percent. It also could phase in a 25 percent deduction for business income reported on individual income tax returns and add a $500 tax deduction for lower-income individuals.

But the five-year phase-in of the tax cuts would not take effect until 2017, and only then if state revenues grew by at least $150 million over their high mark in the previous three years.

The tax cuts are half the size as originally proposed and would start two years later than under a bill endorsed in January by a Republican-led committee. The Senate had been bogged down since then, as Republicans disagreed about how aggressive of a tax cut to pursue and whether to try to compromise with Nixon.

But with less than two months remaining in the annual legislative session, Republicans decided Wednesday that they could no longer afford to delay the progress of the legislation. They endorsed Kraus’ latest proposal by a voice vote with fewer than half of the senators actually in the chamber after just 40 minutes of discussion. A second vote is needed to send it to the House.

An amendment added Wednesday would require the individual income tax brackets to be adjusted annually with inflation, which could result in additional tax reductions.

The bill does not contain Nixon’s proposals to make the tax cuts contingent on full funding for public schools and the enactment of more stringent limits on existing tax breaks for the developers of historic buildings and low-income housing. Nixon’s criteria to sign the bill also had included a trigger of $200 million of revenue growth before an individual income tax cut would kick in, and had excluded any tax break for pass-through business income reported on individual tax returns.

A Nixon spokesman did not immediately respond to a request for comment about the Senate legislation.

Kraus said the 2017 effective date would provide time for the state to close a projected $556 million funding gap for schools and to pass legislation curbing the current tax breaks for developers, as Nixon wanted. But he said fellow Republicans believe the business income deduction is important and aren’t willing to remove it to meet Nixon’s desires.

Democratic Sen. Jason Holsman, of Kansas City, described the bill as “a step toward moderation.”

“It seems like the tax cut is more sensible than it was before,” Holsman said.

But Democratic Sen. Paul LeVota, of Independence, said the tax cut “still is going to hurt things we need to do,” including funding education.

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