JEFFERSON CITY — Over the objections of Democrats, the Republican-led Missouri Senate gave initial approval Tuesday to a phased-in reduction in the state’s income tax rate.
Acting in a slow-moving special session called by Gov. Mike Parson, the chamber advanced a plan to lower the top state income tax rate of 5.3% to 4.95% beginning next year. If state revenues continue to grow at a steady clip, the rate would fall to 4.5% when the measure is fully implemented in five years.
People who earn less than $14,000 will not pay any income tax.
“I think this is a very reasoned approach to this. We’re not cutting too fast,†said Sen. , R-Manchester.
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Sen. , R-Springfield, who sponsored the plan, called the cuts “responsible.â€
“I don’t think this bankrupts the state,†Hough said.
For taxpayers earning $52,000 annually, the change will result in a $66 reduction in their income tax bill. For someone earning $86,000, the reduction would be $143, according to an analysis by the Missouri Budget Project.
Democrats said the state should instead hang on to a record surplus to pay for basic state functions, ranging from road building to raising teacher salaries.
“God knows we need a new I-70,†said Sen. , D-Kansas City. “Missourians are being sold a bill of goods.â€
The plan needs one more vote in the Senate before heading to the House for further deliberations.
Parson contends the state can afford a tax cut because of the state’s current surplus of tax revenue.
The state’s general revenue fund was $4.4 billion on Aug. 30 and growth so far in the current fiscal year is almost 24%, up from a projected growth rate of 2.1%.
But, the state also has received nearly $10 billion from the federal government for the response to the pandemic, raising questions among Democrats about whether the state was squandering one-time money.
At 5.3%, Missouri’s top individual income tax rate is currently lower than 28 other states, including neighboring states of Arkansas, Iowa and Kansas. The national average is 6.4%.
The plan to lower the overall individual income tax rate over five years likely will cost more than the governor’s proposal, which was estimated to cost about $700 million.
Senators and fiscal analysts put the cost of the Senate plan at an estimated $925 million.
None of the yearly, phased-in reductions in the tax rate will happen if overall state revenue doesn’t grow by $175 million in the first year. Starting in 2025, the reductions won’t happen unless revenue grows by at least $200 million.
Sen. , R-Lake Saint Louis, urged his colleagues to approve legislation that would phase out the income tax altogether, saying other states that have no income taxes are faring well.
“We should work to become a zero income tax state,†Onder said.
Senate President , R-Sullivan, said Missouri would first need to identify a way to replace the lost revenue, such as an increase in sales tax rates.
Senate Minority Leader , D-Independence, said other states that have no income taxes supplement their budget through tourism or the extraction of natural resources.
Sen. , D-Affton, said he preferred the tax rebate plan approved in the spring legislative session that would have resulted in taxpayers receiving checks worth up to $500. Parson vetoed that proposal.
“Working class families would greatly benefit from $500 or $1,000 tax rebates as they struggle to make ends meet and battle record inflation,†Beck said.
Sen. , D-Creve Coeur, said she also preferred one-time checks to the phased-in cuts to the income tax rates. She said the state is already having trouble hiring people, causing cuts in services in child welfare, mental health services and schools.
The Senate also moved closer Tuesday to approving a package of agriculture-related tax incentives aimed at helping farmers and ranchers.
Parson vetoed a bill in June containing $40 million in incentives for biofuels manufacturers, meatpackers and young farmers, among others.
He criticized it for only extending the incentives for two years. The legislation awaiting final action in the Senate would authorize the incentives for six years, in line with the governor’s wishes.
The legislation is and .