LEGISLATIVE POLICY BRIEF: MO Legislature Sends Tax Cut to Governor Nixon

Posted by Dave Berry

Subject: Missouri Economic Development
Gate Way Group Contact: David Jackson and Deanna Hemphill
www.GoGateWay.org

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Issue Summary: The Missouri legislature is debating several measures that would amend the state income tax rate for individuals, businesses, and corporations. Together, Democrats and Republicans have filed over a dozen bills that propose changes to Chapter 143 (Income Tax) of Missouri Revised Statutes (RSMo). Although there are considerable differences among the different versions that have been filed, House and Senate leaders have highlighted the issue of broad based tax reform as a top priority in the 2014 legislative session.      

Background: In 2013, Governor Jay Nixon (D) vetoed House Bill 253, a measure that lowered the income tax rates for individuals, small businesses, and corporations. The bill also had provisions relating to streamline sales tax for online purchases. Read the Governor’s veto letter here.

Missouri’s Current Tax Tables: Anyone making over $9,000 is taxed at the top individual income tax rate of 6%. The state currently operates under 11 tax brackets that were set in 1931; however, the top rate increased from 4% to 6% in 1970.

Timeline of Income Tax Rate:

  • 1917: Missouri enacted a flat 0.5% income tax rate on all individuals and corporations
  • 1919: Missouri raised the flat income tax rate to 1.5% during prohibition
  • 1921: Missouri Governor Arthur Hyde (R) reduced the income tax rate to 1%
  • 1930: Missouri created a graduated income tax bracket between $0 and $9,000 with a rate between 0% and 4%
  • 1969: Missouri lawmakers passed former Governor Warren Hearnes’ proposal to raise the top individual income tax rate from 4% to 6%
  • 1969: Senator Earl Blackwell (D-Hillsboro) led the fight against the Governor’s proposed income tax hike. He gathered enough signatures to bring a referendum (people’s veto) to the statewide ballot.
  • 1970: Voters rejected the income tax hike by a vote of 56% to 44%
  • 1970: Governor Hearnes called four special sessions, ultimately forcing the legislature to increase the income tax rate from 4% to 6%
  • 2013: Missouri Governor Jay Nixon (D) vetoed a tax cut measure that would have reduced the state income tax rate from 6% to 5% over ten years

Pending Legislation and Bill Sponsors:

  • Senate Bill 509, sponsored by Senator Will Kraus (R-Lee’s Summit), modifies the individual income tax rate table. The maximum tax rate on personal income will be reduced by one percent over a period of years. Status: Sent to the Governor (4/16/14)
  • House Bill 1295, sponsored by Representative Andrew Koenig (R-Manchester), changes the laws regarding income tax. Status: Passed out of Senate Ways & Means Committee
  • Senate Bill 496, sponsored by Senator Eric Schmitt (R-Kirkwood), creates an individual income tax deduction for business income and phases it in over a period of five years. Taxpayers will be allowed to deduction ten percent of business income for the 2013 tax year and, once fully phased-in, taxpayers will be allowed a fifty percent deduction for all tax years after 2017. Shareholders of S corporations and partners in partnerships will be allowed a proportional deduction based their share of ownership. Status: Combined with Senate Bill 509 and Sent to the Governor
  • Senate Bill 497, sponsored by Senator Eric Schmitt (R-Kirkwood), modifies the individual income tax rate table. The maximum tax rate on personal income will be reduced to 5.5% for the 2015 calendar year. The maximum tax rate will then be reduced by an additional 1.5% over a period of years. Status: Public hearing completed in Senate Ways and Means Committee (1/16/14)
  • Senate Bill 513, sponsored by Senator John Lamping (R-St. Louis), creates an income tax credit of $400 per child for individuals able to claim a dependency deduction for a qualifying child on their federal income taxes. Status: Passed out of Senate Ways and Means Committee (4/3/14)
  • House Bill 1253, sponsored by Representative TJ Berry (R-Kearney), changes the laws regarding taxation by reducing the tax on corporate business income and business income for certain tax entities. StatusHearing Completed in Senate Ways & Means
  • House Bill 1254, sponsored by Representative TJ Berry (R-Kearney), authorizes an amnesty for certain delinquent taxes and allows a 50% income tax deduction for small business income for specified small businesses. Status: Continuation of Executive Session (2/11/14)
  • House Bill 1268, sponsored by Representative Paul Curtman (R-Pacific), changes the individual income tax rates to adjust for inflation. Status: Public Hearing Scheduled in Senate Ways and Means at 8:30AM on April 10 in Senate Committee Room 1
  • House Bill 1422, sponsored by Representative Mark Parkinson (R-St. Charles), Eliminates the corporate income tax imposed on Missouri businesses beginning in 2015. Status: Referred to House Ways and Means Committee. (1/22/14)
  • House Bill 1453, sponsored by Representative Denny Hoskins (R-Warrensburg), changes the laws regarding taxation. Status: Public Hearing Completed in House Ways and Means (2/25/14)
  • House Bill 1297, sponsored by Representative Andrew Koenig (R-Manchester), modifies the corporate income tax rate in Missouri by gradually phasing it out over a five year period. Status: Passed out of House Ways and Means Committee (1/28/14)
  • House Bill 1269, sponsored by Representative Paul Curtman (R-Pacific), eliminates the various individual income tax rate brackets and imposes a tax rate of 6% on Missouri taxable income greater than 160% of the official poverty line for the taxable year. Status: Passed out of Committee (3/11/14)
  • Senate Bill 733, sponsored by Senator Kurt Schaefer (R-Columbia), reduces the rate of tax in personal and corporate income and increases the cap on the federal income tax liability deduction. Status: Public Hearing Conducted in Senate Ways & Means Committee (2/13/14)
  • Senate Joint Resolution 46, sponsored by Senator Ed Emery (R-Lamar), Eliminates income taxes and replaces them with an expanded sales and use tax and creates a property tax relief credit. Status: Public Hearing Completed in Senate Ways & Means Committee (2/20/14)
  • House Bill 1328, sponsored by Representative Jon Carpenter (D-Kansas City), Decreases individual income tax rates on income of $300,000 or less, imposes an 8% tax rate on income above $300,000, creates a low-income tax deduction, and decreases the individual income tax deduction. Status: Public Hearing Completed in House Ways & Means Committee (2/18/14)

News & Media:
Lawmakers Pass Tax Cut, Veto Possible (Associated Press)
Republicans Send Tax Cut to Nixon (Missouri Times)
Senate Gives Tax-Cut Bill First Round Approval (Columbia Daily Tribune)
Mo. House panel endorses two income tax cut plans (Associated Press)
Tax Cut Proposal Passes Mo. House Committee; Testimony Heard On Tax Credit Package (KWMU)
Nixon Calls Senate Tax-Cut Proposal “Fiscally Irresponsible” (St. Louis Public Radio)
Missouri Senate panel approves income tax cut plan (Kansas City Star)
Missouri House committee hears competing tax cut proposals (Columbia Tribune)
Battle over state income tax cut will be revived in Missouri Legislature (St. Louis Post Dispatch)

News & Media from Other States:
Oklahoma governor to propose income tax cut (Associated Press)
Nebraska Governor proposes using $220 million in cash reserves for tax cuts (Watch Dog)
Michigan Senate committee approves income tax cut
Kansas Gov. Brownback touts education, family and growth in setting vision for state’s future
Kansas Gov. Brownback proposes revisions to the FY 2014-2015 budget (governor.ks.gov)
Wisconsin’s Walker taking tax cut proposal on the road (Associated Press)
At Ohio tax conference, Gov. Kasich preaches familiar income tax cut homily (Examiner)
As the Tax Burdens on Illinois Business Increases, Outward Migration Follows (How Money Walks)
Travis H. Brown, Gate Way Group Senior Policy Advisor, on National Media