Last year Kansas took bold steps to reduce their top income tax rate from 6.45% to 4.9%. They also increased the standard deduction and exempted almost 191,000 businesses from state income taxes. Oklahoma also approved a bill that would cut their state’s top income tax rate from 5.25% to 5% in 2015, with a second cut to 4.85% set for 2016, but only if state revenues continue to increase. Kansas legislation did not include this stipulation, thus creating the potential for budgetary problems.
Missouri recently had the opportunity to follow in her neighboring states’ tax-reducing footsteps with House Bill 253. If House Bill 253 had been signed into law, Missouri’s income tax would have been reduced from 6% to 5.5%, and our corporate tax reduced from 6.25% to 3.25%. This could have kept Missouri more competitive.
Missouri’s HB 253 followed more closely with Oklahoma’s legislation, putting very important safeguards in place. These safeguards in our legislation would have required our state revenue to grow by $100 million each year before the next phase of the tax cuts would be implemented. This protection was to have given Missouri an additional level of assurance that the tax cuts would perform as expected and would in fact stimulate economic growth. Missouri’s general revenue would have had to grow by $1 billion over the next ten years for any of these tax cuts to fully take effect. If revenues did not grow, these cuts simply would not have taken place.
Throughout the past session, as HB 253 was being formulated and debated, the governor hinted that his veto-pen was ready. Last week he used that pen and vetoed the bill. At this time it is uncertain whether there will be an attempt to override his veto in the September Veto Session.
In 2011, the governor signed the Corporate Franchise Tax Law. This was a five-year phase-out of Missouri’s franchise tax on corporations and was passed for the same reason as HB 253—to stimulate economic growth through tax relief. Today, many other states are beginning to see the successful results of reducing taxes on businesses and individuals.
Tax relief encourages businesses to reinvest in their operations, thus creating jobs. It also allows individuals to keep a greater percentage of their paychecks and makes more money available for personal usage. It only stands to reason that if phasing out the franchise tax encourages business expansion then the reduction in corporate taxes would have a similar, positive impact.
Most critics of HB 253 were concerned that a reduction in taxes would lead to diminished funding for education (especially K-12). It is important to note that Missouri’s General Assembly has and always will be committed to funding public education.
By law, the General Assembly is required to appropriate 25% of general revenue to education, but today the legislature appropriates almost 35% of general revenue to it. Because of our commitment to education funding, Missouri lawmakers demanded safeguards be a part of the HB 253.
The concern of many legislators is that the growth in spending on social programs and the amount of tax money required for them will continue to consume more and more of our state’s general revenue monies, which could have a future impact on the availability of funds for education. Consequently, now is the time to look at ways to grow the economy in order to ensure that adequate money will be available for tomorrow’s financial needs. HB 253 was an attempt to do just that.