The Missouri House chamber during the 2022 legislative session (Tim Bommel/Missouri House Communications).
Wide-ranging legislation that would lower tax rates for individuals and businesses passed the Missouri House on Wednesday.
The 100 to 53 vote saw three Republicans joining with the Democrats in opposition. It now heads to the Senate for consideration.
A key provision in the bill is a gradual reduction in the state income tax from 4.7% to 3.7% over the next 10 years. The yearly percentage point rate reduction would only go into effect if state revenues grow by at least $175 million per year.
When fully phased in, the bill’s fiscal note estimates a $1.3 billion reduction in state revenue.
“That number would indicate we meet every single trigger, every single year,” said House Speaker Pro Tem Chad Perkins, a Bowling Green Republican handling the legislation. “If things are going that incredibly well, we’re all going to do great. Let’s all hope that happens. That would mean Missouri’s economy is doing great.”
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The corporate tax would also be reduced from 4% to 3.75% and the capital gains tax would be eliminated.
State Rep. David Tyson Smith, a Columbia Democrat, complained that the inclusion of the corporate and capital gains tax cuts focuses too much of the legislation on the wealthy — and does so while potentially putting the state’s budget at risk.
“Everyone appreciates a tax cut,” he said. “But why do we have to slide in tax cuts for the rich?”
Gov. Mike Kehoe entered office in January pledging to fulfill his campaign promise to eliminate the state’s income tax. Republican legislative leaders have echoed his call, pushing a handful of tax cut proposals in both the House and Senate.
One of those proposals — a $300 million capital gains tax cut — cleared the House earlier this year and needs only to be approved by the Senate before heading to Kehoe’s desk.
But on Tuesday, it ran into bipartisan opposition that stalled its momentum.
“It’s just very skewed to the most wealthy people,” state Sen. Mike Cierpiot, a Lee’s Summit Republican, said of the capital gains bill. “The 8,000 wealthiest families (in Missouri) will get more than half of the benefit.”
Federal money that bolstered the state budget for years is drying up, Cierpiot noted, and lawmakers must be mindful when considering anything that could reduce state revenue and impact services.
“Missouri is not like a lot of states,” he said. “If we cut taxes… we have to go back to the ballot to reinstate, so we have to be very careful.”
The top marginal rate for Missouri’s income tax has gradually declined from 6% in 2015 to 4.7% this year under legislation passed in 2014.
Two future tax cuts, to a 4.5% rate, are already in state law and will take effect if general revenue growth hits targets.
Income tax remains the single largest portion of state general revenue, with the individual income tax contributing 65% and the corporate income tax about 7% of the $13.4 billion received in fiscal 2024.