Ending a political fight, the Missouri General Assembly on May 6 approved a $621 million bill to implement the state's first income tax cut in nearly a century, overriding the veto of Gov. Jay Nixon (D), who denounced the measure as fiscally reckless.
SB 509, sponsored by Senate Ways and Means Committee Chair Will Kraus (R), gradually decreases the top individual income tax rate from 6 percent to 5.5 percent over several years. It also includes a new 25 percent individual income tax deduction for business income.
SB 509 makes annual adjustments to the state's tax brackets based on inflation and allows an additional $500 tax deduction for low-income taxpayers whose adjusted gross income is less than $20,000. All tax cut provisions will begin in 2017 and are contingent on fiscal 2016 revenues rising at least $150 million over the highest of the three previous years. The legislation takes effect August 28.
Nixon vetoed the bill on May 1, saying it was "unaffordable, unfair, and potentially dangerous." But on May 4 the Senate voted along party lines, 23 to 8, to override the veto, with the House following suit the next day. All 108 Republicans voted in favor of the bill, and Rep. Keith English (D) was the only Democrat to cross party lines. English could not be reached for comment.
Following the announcement that Moody's Investors Service will downgrade Kansas's credit rating because of sharply lower tax revenues, Nixon warned that SB 509 could "jeopardize Missouri's AAA credit rating and increase costs for local communities." However, Missouri's income tax cuts are much smaller compared with what Kansas enacted in 2012 and 2013.
Citing the $150 million revenue trigger, Kraus defended the bill, saying he had worked with multiple members and looked at tax policies in neighboring states to ensure the bill has the "right mix of protections" for funding priorities.
The Missouri Chamber of Commerce and Industry praised the General Assembly for overriding the governor's veto, calling it "a cautious, responsible approach to reducing our income tax burden."
Nixon vetoed a similar income tax cut last year. The General Assembly was unsuccessful in overriding that veto, falling short by 15 votes in the House. (Prior coverage: State Tax Notes, Sept. 16, 2013, p. 691.)
In the days leading up to the showdown between Nixon and Republican leaders, Grover Norquist of Americans for Tax Reform crisscrossed Missouri with lawmakers, touting his support for the bill. "I think it is very real progress and competitive juices of the neighboring states are going," Norquist told Tax Analysts. "The race to zero is on."
Norquist said Missouri's neighboring states have been competing to reduce personal income taxes, and Missouri was a late adopter because of Nixon's vetoes. Norquist's goal is to eliminate income taxes in all 50 states by 2050, which he said will spur further competition between states for job creation and new businesses.
At the same time, there were many state groups fiercely trying to build support to sustain the governor's veto. Amy Blouin of the Missouri Budget Project said that the new law will "devastate Missourians' quality of life and ability to compete."
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