JEFFERSON CITY — Gov. Mike Parson put his signature on an election-year income tax cut Wednesday, heralding the phased-in reduction as a “fiscally conservative†move that will put money back in taxpayers’ pockets.
Under a plan worked out by lawmakers in a monthlong special session, the state’s top income tax rate will drop from 5.3% to 4.95% beginning in January. Then, if certain revenue thresholds are met, the rate will slowly drop to 4.5%.
“Now is the time to give back to Missourians. We are providing real, permanent relief to Missourians,†Parson said at a bill signing ceremony in his office.
Parson signed two bills Wednesday. Along with the $1 billion tax cut, he approved a package of tax incentives for agricultural businesses that will cost the state an estimated $40 million.
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“Today is a huge win for agriculture,†said Parson, who also operates a small cattle operation at his home in Bolivar.
The tax reduction comes as record-breaking waves of tax revenue have flooded the state’s checkbook, partly fueled by inflation, rising wages and more than $10 billion in pandemic relief funds from the federal government.
Parson gave himself credit for the robust growth in tax revenue, saying it was due to his controversial decision to keep businesses open during the COVID-19 pandemic.
Democrats urged Republicans who control the House and Senate to be cautious in managing future budgets because of the infusion of one-time money from the federal government.
“I think the Republican majority should be sending a very big thank you card to President Biden,†said Senate Minority Leader John Rizzo, D-Independence.
The Missouri Budget Project, a nonprofit think tank that analyzes state spending and revenue, projects the first year cost of lowering the tax rate to 4.95% at more than $500 million.
For taxpayers making $30,000 annually, the move from 5.3% to 4.95% will lower their tax bill by about $10 annually. Someone earning $86,000 will see a $120 reduction in their yearly income tax bill. People earning $152,000 will see a $320 reduction, the group said.
According to the organization, the loss of over $1 billion in revenue comes as the state is struggling to provide services.
“Even with Missouri’s current robust budget, we have many unmet needs as a state — including struggling to take care of abused and neglected kids, as well as Missourians facing mental health crises,†the group said in a statement. “Vulnerable Missourians — including kids — are being put at risk because Missouri has the lowest paid state employees in the country, resulting in staff vacancies.â€
Parson said he will ask the Legislature in January to provide money in the upcoming budget for another round of raises for state workers after he successfully advocated for 7.5% raises this year.
The agriculture tax credits, meantime, will provide “critical support for farmers and ranchers,†the governor said.
The credits affecting meat processors, biodiesel and ethanol producers, young farmers and the forestry industry were because lawmakers had only extended them for two years.
Under the plan sent to Parson Tuesday by the Senate, lawmakers extended the tax breaks to six years, which the governor said will assist the industries in financial planning.