Cost of tax cut swells as Missouri House committee seeks to eliminate corporate tax

The Missouri House will debate a tax cut bill Thursday that goes far beyond the special session agenda set by Gov. Mike Parson after the Budget Committee on Wednesday added an amendment repealing the corporate income tax to a Senate-passed measure.

The committee approved the legislation, which has a total cost approaching $2 billion, on a 19-8 party line vote. The major changes from the Senate bill indicate there is no quick end in sight to the session that Parson called to cut individual income taxes and enact a package of agriculture tax incentives.

Parson put a $700 million price tag on his proposal. The House is scheduled to begin debate on the bill at noon Thursday.

Missouri currently has a top individual income tax rate of 5.3% and a corporate income tax rate of 4%. If the bill passes as it emerged from committee, the top income tax rate will be cut to 4.5% and the corporate tax rate would fall to zero.

The bill includes an immediate reduction in the top tax rate to 4.95% for 2023. The other reductions, including the corporate tax cut, would be phased-in, with triggers based on revenue growth in future years.

Sen. Lincoln Hough, R-Springfield, told the House Budget Committee that his bill, as approved in the Senate, would reduce state revenues by about $1 billion annually when fully implemented. The corporate income tax produced $711 million in the fiscal year that ended June 30 and revenue from that source has grown 30% so far this year compared to the previous fiscal year.

The immediate tax cut offered by the bill is less than Parson sought but the final cost is far more. Parson wanted to set the top tax individual tax rate at 4.8%. He also asked for an increase in the standard deduction and for lawmakers to eliminate the lowest bracket on the tax table, exempting the first $1,000 of otherwise taxable income.

The Senate left out the increase in the standard deduction, Hough said, because its $250 million price tag added too much to the final cost.

“That got us into a situation where, quite frankly, I have caucus members who were uncomfortable,” Hough said.

Opposition to the bill focused on who would benefit from reduced rates. Jay Hardenbrook, lobbyist for AARP, said tax exemptions for Social Security and pension income means many retirees pay no state income tax. But they pay sales tax and rising home values are pushing up their property tax bills, he said.

“If you are just focused on income taxes, you are not going to reach those folks with tax relief,” Hardenbrook said.

The corporate tax cut was the biggest addition to the bill in committee. The tax rate would be reduced in two steps, to 3% and then 2%, in the years after revenue from the corporate income tax increased over a base period by at least $150 million.

The tax would be cut further, by 0.25 percentage points, after each subsequent fiscal year that revenue increased by at least $50 million. The trigger amounts would be adjusted for inflation, meaning it would take at least 10 years before the tax was fully eliminated.

“If the corporate income tax doesn’t increase, then this won’t happen,” said Budget Committee Chairman Cody Smith, R-Carthage.

Smith said it would attract business and jobs to the state.

State Rep. Peter Merideth, the ranking Democrat on the committee, said the bill uses a temporary surplus to pay for permanent tax cuts. The state support for education and other programs is already too little, he said, even with recent increases.

The state pays too little of the share of public education, Merideth said, and the Children’s Division in the Department of Social Services can’t keep fill the open jobs protecting kids from abuse and neglect.

“I think we are jumping into a decision that is permanent that is very difficult to undo down the road,” Merideth said.

Along with the corporate tax cut, the committee added two other smaller items to the tax bill. The committee voted to make a tax credit for adoption expenses a refundable credit, meaning if the allowed expenses exceed a taxpayer’s liability, the state will issue a check for the difference.

The committee also voted to repeal the state general revenue sales tax on tampons and adult hygiene products.

Smith declared the amendment, sponsored by Rep. Rasheen Aldridge, D-St. Louis, defeated on a voice vote, but Aldridge requested a roll call. Several Republicans voted with Democrats on the committee to pass the amendment by a 14-10 vote.

Soon after the Democratic-sponsored amendment prevailed, Smith said he would not allow any other amendments, citing the six hours the committee had been in session. 

Merideth challenged that, saying Smith was exceeding his authority.

“I think it is incredibly disrespectful, not just to the people you and I represent, and not to mention staff, not to let us offer our amendments,” Merideth said.

Smith, however, didn’t budge.

“I am not going to argue this point with you,” he said.