How Will Missouri’s 2014 Tax Cut Impact the State?

May 14, 2014

Last week, Missouri legislators overrode Governor Jay Nixon’s veto of the first income tax 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.

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 businesses such as S corporations and LLCs lowers effective rates for those entities but misses an opportunity for lowering overall rates in the income tax.
  • SB 509 inflation adjusts tax brackets to correct for “bracket creep.”

Read the full analysis here.

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