Missouri Republicans are pushing for a regressive income tax cut that could end up costing the state billions of dollars each year thanks to a loosely worded sentence in the legislation.
The law would push the top marginal income tax rate down from 6 percent to 5.5 percent, among other provisions. That top rate applies to earnings above a certain threshold, which lawmakers intend to lower from $9,000 to $8,000. For the bottom fifth of Missouri earners, the bill would mean just a $6 tax break. The state’s wealthiest would get a nearly $8,000 boost from the bill, on average.
Official projections say the changes would cost the state $620 million annually by the time they come into full force in 2022. But Gov. Jay Nixon (D) says that one sentence in the bill would end up eliminating all state income taxes on earnings over $9,000, which would push the state’s annual revenue losses up to $4.8 billion each year for a state that currently relies on tax collections of about $8.2 billion annually. If Nixon’s analysis is correct, the bill would cost Missouri nearly 60 percent of its tax revenue.
Republicans say Nixon’s interpretation of the sentence is inaccurate and argue that lower taxes would bring a net improvement to the state’s economy. Each side has a legal expert to make its point, with a Washington University law professor supporting Nixon’s argument and a retired state Supreme Court Chief Justice backing the legislators. But even using lower estimates of the revenue loss from the tax cut, the bill would still undermine state services, according to the Missouri Budget Project.
The group pointed to neighboring Kansas for evidence that the top-heavy tax cut Republicans want would do more harm than good. That state has gone through multiple rounds of regressive income tax cuts in recent years, leaving it unable to fund its schools at the levels required by its constitution. Poverty has increased in the state since the cuts took effect, and its economy is floundering rather than prospering.
Previous research has shown that state tax cuts don’t accelerate economic growth. Because most states are required to balance their budgets each year, however, the cuts do force reductions in public services. Years of fiscal hardship stemming from the Great Recession forced Missouri to cut public health spending, education funding for both primary and higher education, programs for the elderly and disabled, and government staff levels. The state’s tax collections finally rebounded last year, but the cuts currently waiting for Gov. Nixon’s signature would limit Missouri’s ability to restore some of those services.