Tax Reform Comes to Another Midwestern State; Missouri Legislature Overrides Veto

Since 2011, an economic movement has been sweeping across the American Midwest. It began a few years ago in Wisconsin under the leadership of then-newly elected Governor Scott Walker. After taking root in America’s Dairyland, this phenomenon migrated southwest to Kansas and emerged in 2012 and 2013. Now in the year 2014, this movement, or call to arms if you will, has taken root in Oklahoma, Indiana, and, most recently, Missouri. So what, exactly, is this state-changing, monumental happening? Two words: tax reform.

And, after nearly a century, Missourians finally get to experience it for themselves.

For the first time since 1921, lawmakers in Jefferson City have decreased the Show Me State’s individual income tax rate. May 6, 2014, should be remembered as a historic day for the state’s pro-growth legislators as well as for all of Missouri’s hard-working men and women, but this great achievement did not come easily.

During the 2013 legislative session, the Missouri legislature passed a similar tax cutting bill (HB 253), only to have it vetoed by Democratic Governor Jay Nixon. Despite garnering statewide support leading up to the special September veto override session, the attempt to override the governor’s veto fell short 15 votes due to Nixon’s scare tactics (he alleged there would be massive cuts to education spending) – and party division on the issue. That, however, did not deter the Republican-led House and Senate from pursuing tax cuts again in the 2014 session.

Again the legislature passed a bill to cut taxes. And again, Governor Nixon vetoed it, but this time legislators stood together to override the governor’s short-sighted attempt to keep tax relief from Missourians. So what does this income tax cut legislation, also known as SB 509, do?

First, it reduces the top marginal income tax rate of 6 percent on income over $9,000 to 5.5 percent (an effective cut of 10 percent). A fiscally responsible bill, SB509 will take effect in 2017 only if the state sees an additional $150 million in annual revenue over the next three years. In terms of dollars and cents, a middle school teacher in St. Louis, MO earning $57,640 (according to the Bureau of Labor Statistics) will have over $200 more per year after the new rate of 5.5 percent goes into effect. And of course, teachers aren’t the only professionals who can expect to keep a little more of their earnings: the tax cut applies to all working Missourians.

Second, SB 509 creates an individual income tax deduction for business income, which will total 25 percent after being fully phased in. This particular section of SB509 comes in reaction to Kansas’ income tax exemptions for partnerships, LLCs, S-corporations, and sole proprietorships.

Third, these cuts will reduce Missouri’s total tax burden from 9 percent of personal income (according to the nonpartisan, nonprofit Tax Foundation) to 8.7 percent, barring any other changes in the tax code and after factoring in all other types of taxes the state currently levies on its residents. While all of these changes are modest compared to Missouri’s neighbors, it does provide a good start to what could be a strong pro-growth economic “revolution.”

If there is one key takeaway from this two-year process of passing income tax cuts in Missouri, it’s that Governor Jay Nixon would rather pander to his federal counterparts than work to provide a better economic future for Missouri residents. The Republican-led House and Senate have seen the economic growth and impact cutting taxes can have; Wisconsin experienced a $912 million surplus by cutting taxes over the past 3 years. Perhaps a new, fiscally responsible governor could guide Missouri along the path toward a brighter economic future, similar to that of low-tax states like Texas.