Forbes: It Took Missouri’s Lawmakers 93 Years To Take A Very Positive Leap
It may have taken 93 years to accomplish, but for the first time since 1921, lawmakers in Jefferson City have decreased Missouri’s income tax rate.
On May 6, 2014, the state legislature – by votes of 109 to 46 in the House and 23 to 8 in the Senate – overrode Democratic Governor Jay Nixon’s veto of SB 509: legislation that reduces Missouri’s top marginal income tax rate of 6 percent to 5.5 percent (or 10 percent), provides small businesses with a 25 percent income tax exemption, and administers $620 million in tax relief for hard working Missourians. While veto overrides are a key component of the legislative process at the state and federal levels, what makes this particular override significant is that it was Governor Nixon’s second attempt at vetoing income tax cutting legislation in as many years.
As you may recall from the Show Me State’s 2013 legislative session, a similar bill designed to cut Missouri’s income tax (HB 253) was vetoed by the governor and fell short of being overridden by 15 votes due to division within the Republican-controlled House of Representatives. Fortunately for all Missouri residents, Governor Nixon’s divisive tactics, specifically his fear-mongering related to alleged education spending cuts, failed to disrupt the House and Senate’s effort to lower the total tax burden for their constituents this time around.
So what does this tax cut mean for Missouri?
For starters, it means Missouri legislators have taken note of the tax reform movement that has swept not only through states such as Wisconsin, Florida, and North Carolina over the past three years, but also through its neighboring states of Kansas and Oklahoma. This is what the Wall Street Journal dubbed “the Heartland tax revolution,” and Missouri is finally taking part. Last week, Oklahoma reduced its top marginal income tax from 5.25 percent to 5 percent. Last year, Kansas eliminated one of its three tax brackets and reduced its top marginal rate of 6.45 percent to 4.9 percent. Additionally, Kansas passed income tax exemptions for partnerships, LLCs, S-corporations, and sole proprietorships, which has resulted in over 3,000 jobs moving to Kansas. For a state that has lost $1.76 billion in adjusted gross income from 1992 to 2011, according to data from the Internal Revenue Service, the override sends a clear signal that the door to more tax reform in Missouri is officially open.
In terms of real gross domestic product (GDP), this tax cut strengthens the Missouri economy. Ten years after full implementation of SB509, our analysis and economic forecast show that the Show Me State can expect to have $1 billion more dollars in its coffers than if it had continued to stay the course with the former top rate of 6 percent on earned income over $9,000. Similarly, if Missouri were to bring the top marginal rates down by another 0.5 percent or eliminate the income tax altogether, by 2022 real GDP could grow to values between $239.7 billion and $265.5 billion. This increase would in turn lower unemployment rates, currently higher than the national average of 6.4 percent, and strengthen a struggling state economy.
Rather than pandering to his counterparts in Washington, D.C., in order to secure a federal position, Governor Jay Nixon should work to improve the economic welfare and lower the total tax burden on his constituents. Despite the fact that Missouri’s Constitution requires that 26 percent of state revenues go to education (and currently,33 percent of revenues go to schools, as Republicans have increased education budgets since 2003), Governor Nixon continues to threaten education spending despite having neither the power to do so nor credible research. Income tax cuts have proven to increase revenues, because they not only put more money back into the hands of workers, but also provide them with greater financial security and the ability to purchase more goods and services. If Governor Nixon focused more of his attention on Missourians, perhaps he would have a better understanding of their needs and wants.