Missouri would have a flat income tax that exempts many lower income earners under a proposal floated Friday by Gov. Mike Parson after he vetoed a tax rebate plan overwhelmingly approved by lawmakers.
Parson vetoed four bills in all, including a bill extending a variety of tax incentives important to farmers and rural businesses, such as credits for meat processors, biodiesel producers and to establish “urban farms.” Some of the credits expired at the end of 2021, but Parson objected to only extending them through the end of 2024.
Parson wants both bills addressed in a special session, with the tax cut in place by Jan. 1. The timing of a special session needs to be worked out with legislative leaders, Parson said.
The bill Parson vetoed would have authorized tax rebates of up to $500 for individuals and $1,000 for married couples. The rebates would go to individual filers with an income of $150,000 or less and couples with incomes below $300,000.
Friday’s veto was expected after he vetoed an appropriation setting aside up to $500 million to pay the rebates a day earlier.
Parson said the plan was well-intentioned but left out both lower- and higher-income Missourians and did not provide permanent relief. His proposal would exempt the first $16,000 of an individual’s income, and the first $32,000 of a couple’s income, from state income taxes. During 2021, incomes below $12,550 for individuals and $25,100 for couples were protected from taxes by the standard deduction.
The top tax rate in 2021 was 5.4% for taxable income of $8,700 or more. Parson said he wants a tax rate of 4.7% to 4.8% with no brackets.
“I think it is the fairest thing we can do for all Missourians,” Parson said.
A permanent tax cut will get more money to Missourians than the tax rebate plan, Parson said. The $500 million set aside for the program was insufficient to fund it, he said.
The rebates would have been issued after the final personal income tax extension deadline in October. Every eligible taxpayer would get a prorated share based on how much income tax they paid.
“We want to be clear that no one was going to receive direct checks for $500 or $1,000 under House Bill 2090,” Parson said.
The plan started as a $1 billion program for all tax filers but was pared back in the state Senate. The change was acceptable because it got the bill passed, said House Budget Committee Chairman Cody Smith, R-Carthage.
“I was happy not to let the perfect be the enemy of the good and vote for 2090 when it came back from the Senate,” Smith said.
The rebate would have helped Missourians struggling with inflation, said Sen. Lincoln Hough, R-Springfield.
“I am disappointed the governor decided to veto what could have been a financial shot in the arm for countless hardworking Missourians throughout our state,” Hough said in a news release.
Missouri’s treasury has massive surpluses of general revenue. A general revenue surplus estimated in January to be about $3 billion is closer to $4.5 billion as the new fiscal year begins. If revenues don’t grow at all in the coming year, the current year could end with a similar surplus.
“The temporary nature of the tax cut was kind of, we have an excessive amount of revenue, of a one-time nature, and we would have gone into the next legislative session to talk about a permanent tax cut,” Smith said.
The current financial situation of the state has few parallels in its history. But in the late 1990s, state revenues exceeded the limit set by the Missouri Constitution, triggering automatic refunds. In response, legislators eliminated the general revenue sales tax on food purchases at groceries. When a recession hit around 2001, a revenue shortfall triggered large budget cuts.
Rep. Peter Merideth, D-St. Louis and the ranking Democrat on the House Budget Committee, said he worries a permanent tax cut now will have the same result.
“That is what history tells us,” Merideth said. “For the last 10 years prior to this surplus,which is largely thanks to significant federal investment, we were struggling to keep up with our bills.”
Parson, however, said he thinks the surpluses will last.
“We are still going to have money on the bottom line for years to come,” he said.
Lawmakers have budgeted conservatively and put aside about $1 billion in extra federal Medicaid matching funds to maintain the program, Smith said.
“I hope we are all united in the idea that we are in a position from a state budget perspective and a revenue perspective that we can cut taxes without cutting services,” Smith said.
Amy Blouin, director of the liberal think tank Missouri Budget Project, said she was pleased Parson vetoed the “ill-conceived tax credit proposal that left out the very Missourians who need it most.”
The group will advocate for tax relief that benefits lower-income Missourians in the special session, she said.
The agriculture incentives bill was vetoed because investors need certainty, Parson said. A two-year extension isn’t long enough to get a new project started to use the credits, he said.
“I will never sell farmers or ranchers short,” Parson said.
A co-sponsor of the bill, state Rep. Peggy McGaugh, R-Carrollton, said she was disappointed and said Parson could have made his objections to a short extension known during the session.
“I am surprised that we didn’t work it out on passage,” she said.
In a joint statement, major agriculture lobbying groups, including the Missouri Farm Bureau and commodity interests, said they, too, were disappointed by the short extension and they support Parson’s call for a special session.
The other two bills vetoed by Parson did not get much attention during the session.
One would have changed some rules on publishing financial statements in St. Charles County but Parson said it also could have disrupted school construction projects by forcing a second public vote when costs exceed estimates.
The other would have regulated the sale of kratom products, which the FDA considers a dangerous substance. Parson said he doesn’t want to legalize kratom and put the state into conflict with federal guidance.