Last week, Missouri legislators overrode Governor Jay Nixon’s veto of the first income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cut since 1921. Proponents championed the bill’s passage as “real progress” and proof that “the race to [a zero percent income tax] is on.” Adversaries commented that nothing had been done to “rein in this tax orgy.” However, after reviewing the details of the bill, we found that the reform will have a minimal impact on the state.
Despite the fantastical claims of advocates, the modest reduction in tax rates comes at a glacial pace. And in spite of the vitriolic blowback from the bill’s adversaries, the bill’s revenue impact is minimal: Missouri’s state budget would still grow by 7 percent next year even if the whole cut were phased in immediately.
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Our report found that:
- Missouri’s 2014 tax package cuts income tax rates by 0.1 percentage points each year for five years starting in 2017, provided certain revenue conditions are met.
- The bill’s revenue impact is minimal. Even if the full tax cut were phased in immediately, the budget would still grow by 7.3 percent next year.
- A deduction for pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. es such as S corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). s and LLCs lowers effective rates for those entities but misses an opportunity for lowering overall rates in the income tax.
- SB 509 inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. adjusts tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s to correct for “bracket creepBracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state level—are adjusted for inflation. .”
Read the full analysis here.
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