Understanding Missouri’s new tax cut

In early May, the Missouri General Assembly overrode a veto by Gov. Jay Nixon to give Missourians their first income tax cut in nearly 100 years. Here are the details of who gets the cut, when it will begin and how small businesses will benefit.

taxcutWhat is the new income tax?

Once fully phased in, the new income tax in Missouri will be 5.5 percent. The state’s current income tax rate is 6 percent.

Who gets this tax cut?

All Missouri taxpayers.

When will the tax cut take effect?

The tax cut is designed to be phased in over five years, with the income tax rate dropping by .1 percent each year. The law specifies that the first cut could happen in 2017. However, the bill also requires that state revenue increase by $150 million before each of the yearly .1 percent drops happen. So, depending on state revenue growth, 2022 is the earliest year when Missourians would be paying 5.5 percent. However, the full phase in could take longer if state revenues don’t grow by $150 million per year.

Will the tax cut hurt education funding?

No. The bill was carefully designed to ensure lawmakers will continue to have funds available to increase funding for education. By requiring revenue growth prior to taxpayers seeing a rate reduction, the law ensures state budget makers will continue to have the funds they need to fulfill their obligations to Missouri’s schools, colleges and universities.

How does this help small businesses?

Small business owners, like all Missourians, will be paying the lower 5.5 percent income tax rate once it is fully phased in. However, the new law also includes a special pass-through provision allowing a new 25 percent deduction on business income that is reported by individuals.

When does the new small business tax cut take effect?

This new 25 percent small business income deduction has the same trigger as the income tax cut. It will occur in five annual 5 percent deductions beginning in 2017. Like the income tax cut, state revenues must grow by $150 million each year for the cut to take effect. So, again, 2022 is the earliest year this deduction could be fully phased in.

What bill contained this tax cut?

Senate Bill 509, sponsored by Sen. Will Kraus.

Who should I contact for more information?

You can contact Tracy King, Missouri Chamber vice president of governmental affairs, at tking@mochamber.com, or by phone at 573-634-3511.

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House bill proposes to alleviate tax burden on Missourians

In an effort to adjust Missouri’s income tax brackets to align with inflation, Rep. Paul Curtman, R-Pacific, has proposed a bill, House Bill 1268, that would alleviate the tax burden many lower and middle-class Missourian’s are paying.

Currently, the highest Missouri income tax bracket is set at $9,000, meaning an individual making $9,000 or more a year would incur the state’s highest tax rate of six percent. This tax bracket was established in 1931, a time in which a $9,000 yearly income was very high. Had the tax brackets been adjusted for inflation since 1931, the highest tax bracket would be closer to $135,000 today.

This situation creates an inflation tax, causing Missouri to collect an extra $2.5 billion every year in extra income due to inflation. Under this system, a person making $9,000 annually, which is $2,400 below the national poverty level, is paying income tax at the highest rate the state charges.

HB 1268 would have Missouri’s tax brackets adjust for inflation each year from 2015 forward, and would immediately render tax relief to some of the poorest Missourians.

“This bill addresses a problem that illustrates just how antiquated Missouri’s’ tax policy is,” Tracy King, vice president of governmental affairs for the Missouri Chamber, said. “Tax reform is going to be fundamentally necessary to the economic development of our state.”

For more information about tax policy legislation, please contact Tracy King at tking@mochamber.com or by phone at 573-634-3511.

House acts on bills to cut Missouri tax rate

Proposals to cut taxes for Missourians were given preliminary approval by the House of Representatives this week.

The bills would reduce the amount of business income taxed by 50 percent and cut the state’s corporate tax rate from 6.25 percent to 3.125 percent. Also on the table is reducing the individual income tax rate from 6 percent to 5.3 percent.

The tax cut proposals are contained in House Bill 1253, sponsored by Rep. T.J. Berry, R-Kearney, and House Bill 1297, sponsored by Rep. Andrew Koenig, R-Manchester.

All of the proposed tax cuts would be phased in gradually over several years. The bills also contain wording that would protect important state functions, such as education, from the possibility of reduced funding. The tax cuts would only be triggered in years when there was either stable tax revenue or revenue growth.

The bills are a continuation of a discussion from last year.  The Missouri Chamber of Chamber of Commerce and Industry, along with legislative leaders, has pushed for meaningful tax reduction to bolster economic development and help Missouri remain competitive with other Midwestern states which are also aggressively cutting taxes.

The Missouri General Assembly succeeded in passing a broad tax cut last year. However, it was vetoed by Gov. Jay Nixon. An attempt to override the veto during a special session narrowly failed.

This year, there are a number of proposals being considered. The Missouri Chamber continues to support broad based tax relief for Missouri businesses and all Missourians.

“The proposals we are working on this year offer aggressive tax relief to all Missourians, freeing up greater resources for businesses and individuals to invest in our economy and job creation,” said Tracy King, Missouri Chamber vice president of governmental relations. “At the same time, these bills protect our state’s important investments in areas such as education. We continue to advocate for an approach that both reduces our tax burden while providing adequate funding to help ensure our students are receiving the education they need for tomorrow’s economy.”

For more information, please contact Tracy King at tking@mochamber.com or by phone at 573-634-3511.