KANSAS CITY, Mo. — Missouri Gov. Mike Parson called for a special session Monday and will ask the state legislature to extend “key agricultural tax credit programs” and reduce the state’s income tax.
The Missouri legislature will convene at noon on Sept. 6 to consider Parson’s proposal.
Parson’s plan calls for reducing the state’s top individual income tax rate from 5.3% to 4.8% and increasing the standard deduction for individuals by $2,000, which means a $4,000 increase for married couples filing jointly.
Individuals and couples who make more than $8,704 per year are currently taxed at 5.3%, according to the Missouri Department of Revenue. The state’s tax tables haven’t been adjusted since the 1930s.
Parson touted that his plan would eliminate the state’s bottom income bracket.
"Our tax cut proposal means that every taxpaying Missourian, no matter their background, income, or job description, will see a reduction in their tax liability," Parson said in a statement. "Every Missourian will earn their first $16,000 tax free and married joint filers will earn their first $32,000 tax free, resulting in significant savings for millions of Missourians. Our plan puts more of Missourians' hard-earned dollars back in their pockets and aims to make it a little easier for families to put food on the table and gas in the car."
"My team and I have been working with our colleagues in the General Assembly and agriculture partners to formulate a plan to adequately extend our critical agriculture tax credit programs and pass the largest income tax cut in state history," Governor Parson said. "Today, we believe we have that plan and are ready to call legislators back to Jefferson City to get to work on behalf of our farmers, ranchers, and business owners and provide lasting tax relief to every taxpaying Missourian."
According to Parson, the plan would cut more than $700 million in income taxes, calling his proposal the largest income tax cut in state history.
“We’ve been analyzing this for over a year now, trying to figure out at what moment to do this, can we afford it and can we sustain it,” Parson said.
He believes it’s a “conservative number” that will reduce the state’s tax surplus without having to eliminate current programs.
“Honestly, you have some people that want to do more, but what we can’t do is make an omnibus tax bill, because we already know that some of the things some people would like to put in there can’t even get through the General Assembly now,” Parson said. “Again, we want to make it simple. There will be others on both sides of the aisle who are always concerned about it being too much. But we don’t want to go too far and tip the balance to where all the sudden we can’t pay the bills that we currently have.”
He also called for a series of new or extended agricultural tax credits with a minimum six-year sunset. That lists includes:
- Extending the meat-processing facility investment, Rolling Stock, Agricultural Product Utilization Contributor and New Generation Cooperative Incentive tax credits;
- Creating new tax credits for retail dealers of higher ethanol blend fuels and biodiesel, Missouri biodiesel production, and for establishing or improving urban farming operations;
- Creating a Specialty Agricultural Crops Act;
- Creating a use/sales tax exemption for utility vehicles for agricultural use from state and local taxes;
- Modifying the Family Farms Act to change the definition of “small farmer.”
Watch the governor’s press conference here:
Despite infighting that hamstrung the Missouri legislature, particularly the state senate, Parson is hopeful that his approach can generate a quick consensus.
“I think there is a way to move forward on that,” Parson said.
He said if the economy continues to go well there could be an opportunity to cut taxes further in the future, but he cautioned that Missouri’s budget is highly dependent on state income tax collections.
Individual income tax accounted for nearly 20% of Missouri’s $35-billion budget for the fiscal year 2021, while 42% came from federal funds. Minus federal funds, the state income tax accounted for more than one-third of state-generated revenue, according to the Missouri Budget Project.
Missouri ranked 14th in terms of its dependence on individual income taxes as recently as 2018.
“If this goes well and the economy goes well, then I think we can be right back at the board doing more for the people of Missouri,” Parson said. “Right now, things look really good, but you always have to prepare for the day that it may not be so good. We’re pretty optimistic this is a good plan moving forward for several years, and we think the state can pay the bill.”
Missouri has more money on hand than ever before, thanks partly to a combination of inflation, higher wages and federal funds. The state closed out its 2022 fiscal year with a general revenue balance of nearly $4.9 billion — more than double the previous record set just one year ago.
Parson said some of that money should go back to taxpayers.
"Our plan puts more of Missourians' hard-earned dollars back in their pockets and aims to make it a little easier for families to put food on the table and gas in the car," Parson said.
The special session is scheduled weeks before voters in November will decide whether to re-elect current House members and some senators, which puts heavy pressure on Republicans to support the tax cuts.
But Democrats and other skeptics warned that Parson's plan could put the state in financial jeopardy.
Missouri Budget Project President and CEO Amy Blouin credited the huge influx of pandemic-related federal funds for the state's current budget surplus. The Missouri Budget Project analyzes how economic policies impact low-income families.
"Quite simply, relying on the current surplus to fund permanent tax changes isn't fiscally sustainable, or responsible, and will ultimately require cuts to state services like we saw in Kansas a few years ago," Blouin said.
Missouri relies on the ninth-highest percentage of federal dollars among all 50 states, according to analysis by Smart Asset.
Under former Republican Gov. Sam Brownback, Kansas enacted a nationally notorious income tax cut experiment in 2012 and 2013. Those cuts were largely repealed in 2017 following massive, persistent budget shortfalls that forced GOP lawmakers to repeatedly cut spending and boost other taxes to keep lower income taxes.
House Democratic Minority Leader Crystal Quade called Parson's tax cut proposal "a textbook example of fiscal irresponsibility."
Parson proposed the income tax cut as an alternative to lawmakers' planned one-time tax refund, which he vetoed in June.
Under the bill passed by lawmakers this year, taxpayers would have gotten a one-time tax credit of up to $500 for individuals and $1,000 for couples. The refunds would have gone only to individuals earning less than $150,000 and couples making less than $300,000 annually.
In practice, people would have received a $1 refund for each $1 of tax owed until their tax bill reached the refund limit of $500.
Democratic lawmakers had argued the tax refund would only benefit middle-income families because the poorest workers don't pay income taxes and that not enough money was set aside to provide the full $500 or $1,000 for everyone who qualified, a concern Parson echoed on Monday.
The Associated Press contributed to this report.
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