THE 100 REPORT
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SPECIAL SESSION: PREVIEW
On August 22nd, Governor Mike Parson issued a special session call for the Missouri legislature to gather in Jefferson City, beginning September 6th, and pass what he hopes would be the largest state income tax cut in Missouri history.
As an avid supporter of pretty much all tax cuts and having never met a tax I wasn’t willing to cut, the Governor’s call was welcome news. Cutting taxes has been surprisingly controversial for Republicans during my tenure in the Missouri Senate—our most recent major tax legislation passed through the Missouri Senate was an historic increase of taxes on gasoline.
Although we have delivered major income tax cuts in the past (HB 1540; Eigel and HB 554; Koenig), Missouri has fallen behind the income tax-cutting efforts of other neighboring states. Iowa, in March of this year, cut its income tax rate from 8.53% to 3.99%, which will make it ultimately the 4th lowest rate of any state that has an income tax. Kentucky overrode their Democratic Governor this year as well to lower their rate from 5.0% down to 4.0%. Nebraska lowered its income tax rate in April of this year from 6.84% down to 5.84%. Arkansas cut income taxes for the THIRD time since 2015, driving its all time high rate in 2014 of 7.0% down to 4.9%. Tennessee has never had an income tax.
Today, Missouri sits at 5.4%, and is scheduled for a series of revenue-triggered cuts that will ultimately drop the rate (with no further changes in law) down to 4.8%.
In his call for Special Session, Governor Parson has called on the legislature to make the future rate of 4.8% activate right away, and has told legislators privately that he would support leaving the existing triggered cuts in place as well. This would put the final rate of income tax at 4.3% when all is said and done. Also, the Governor’s proposal would eliminate the 1% tax on the first $1,000 of income for Missouri households and increase standard deductions across the board.
Such a proposal would indeed become the largest single tax cut in Missouri history—to the tune of a total cost of between $650 and $700 million.
On the not-so-great side of things, Governor Parson’s call additionally includes the creation or re-authorization of a long list of special interest tax credits that benefit relatively few Missourians. This would include special agriculture tax credits, bio-diesel fuel tax credits, urban farming tax credits, corporate rolling stock credits, utility vehicle tax credits, special deals for retailers of biodiesel—lots of giveaways to some powerful special interests here. Typically, I frown upon these giveaways. Tax relief should be given equally and generously to ALL Missourians, not just the few that have powerful lobbyists in Jefferson City.
Nonetheless, in the broader context of an historic income tax cut, I could likely swallow this albatross of tax credit giveaways as long as Missourians are also concurrently getting a major reduction in their tax bill. Missouri needs to be a leader regionally, which means we need to target a final income tax rate of 3.9%, putting us ahead of all of our neighbors besides Tennessee. This is a bit more cutting than the Governor proposed (an additional .4% beyond his proposal plus the triggers), but it is certainly attainable.
We can certainly afford it! Last year, the state recorded a record surplus in General Revenue of more than $2 billion on an annual basis—so the cuts the Governor is proposes would actually cost less than 40% of JUST the growth in revenue we saw last year. In the first fiscal year of 2022, revenue is growing at an astounding rate of 41% above last years previous totals! This will create billions more in annual surplus dollars.
A couple weeks ago, the Conservative Caucus disbanded and offered an olive branch to our colleagues to unite together under the idea that a new leadership coalition could bring the caucus together and pass precisely the type of big-idea legislation like the tax cuts the Governor is proposing.
Assuming our more tax cut-adverse colleagues don’t try to sabotage the process by eliminating the further triggered cuts (which would change the entire debate from a big tax cut to just an acceleration of cuts already achieved) and will work with us to maximize the biggest tax cut we can find, there exists much potential that this could be a great special session.
On the other hand, we won’t have a new leadership coalition in place until at least January 2023, so a minefield still exists. We will be sure to keep all members of The 100 posted on progress.
Either way, I’m very pleased to see Governor Parson take the lead on cutting taxes. His leadership is critical to moving forward with major reforms in Jefferson City.
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