Missouri Lawmakers Override Governor’s Veto, Choose Economic Growth

Yesterday, the Missouri House of Representatives voted to override the veto of Governor Jay Nixon and enact broad based tax cuts for the citizens of Missouri for the first time in almost 100 years. The Missouri House joins the Missouri Senate, which voted to override Governor Nixon’s veto Monday. The tax cut package is similar to one which passed the legislature last year and was also vetoed by Governor Nixon. The previous veto was sustained. Ironically, Governor Nixon vetoed broad tax cuts (now twice) for all Missourians who pay income taxes even though he called a special session last year to give targeted tax breaks to a single company in an effort to get the company to relocate to Missouri. But, with the recent actions of the legislature, all Missourians will be keeping more of their hard-earned money over the next few years.

The new Missouri tax cuts include cutting the personal income tax rate from its current 6 percent down to 5.5 percent gradually over several years and phasing in a 25 percent deduction for business income that is taxed through the personal income tax code. The total value of the tax cuts is estimated to be about $620 million dollars. These dollars will remain in the pockets of Missouri citizens and businesses.

The deduction for business income affecting pass through entities is a direct response to recent tax changes in Kansas. This is a desperately needed first step for Missouri, which must compete with Kansas for citizens and businesses. In 2012, Kansas chose to exempt 100 percent of non-wage income for pass through businesses from taxation. The impact of this policy on Missouri has been significant. From May 2012 to May 2013 9,500 jobs were created in the Kansas City Metro Area, all of them on the Kansas side of the border. This trend has continued into 2014 as well.

Although this is great news for citizens and businesses in Missouri and is certainly a significant step in the right direction for tax policy, the tax cut package comes with some important caveats. First, the tax cut phase in will only begin in 2017 and won’t be fully phased in until 2022 (if revenue estimates are met). Second, the state must collect $150 million of revenue above the highest level in the preceding three years for the next year’s scheduled incremental tax cut to take effect. Also, it is relevant to note that according to the Census Bureau, Missouri collected over $11 billion in total taxes and that a cut of $620 million (once fully phased in) would represent a decrease in total tax collections of less than 6 percent, even assuming that there are no dynamic revenue effects from economic growth and revenue collections remain constant.

Despite these caveats, Missouri lawmakers have still successfully passed pro-growth legislation that will help to grow the state economy and improve the lives of Missourians. Governor Nixon’s veto override marks a turning point for Missouri; lawmakers are no longer standing by while businesses and people are fleeing to Kansas. They have taken the first step in making sure that Missouri lives up to its full potential for economic growth.



In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure…

+ Cronyism In Depth