Missouri nonprofit offers alternative to Governor’s tax cut proposal

As Missouri lawmakers delayed the start of the special legislative session to determine a clear path on tax cuts, a public policy analysis nonprofit is offering up an alternative.

Missouri Budget Project, a St. Louis based nonprofit offering research and analysis of state budget, tax and economic issues, released an alternative tax cut and reform proposal Sept. 1, calling the plan orchestrated by Gov. Mike Parson a "potential budget bomb."

Parson, a Republican, issued the call for lawmakers to return to the Capital City on Sept. 6 for a special legislative session centered around extension of agricultural tax credits and what he's calling the largest tax cut in Missouri history.

A week before the start date, House and Senate leadership announced in a joint statement Aug. 31 that they were delaying the start of the special session a week to continue discussing specific details of the tax cut and agricultural credits.

After vetoing a tax rebate program legislators passed in the spring and citing a lack of funding and minimal impact on low-income households, Parson proposed permanent tax relief by reducing the top income tax rate from 5.3 percent to 4.8 percent, increasing the standard deduction to $2,000 for individuals and $4,000 for couples, and eliminating the bottom income tax bracket.

Together, Parson said the measures mean Missouri wouldn't tax the first $16,000 in income for individuals and $32,000 in income for couples.

"The point is that every tax-paying Missourian, no matter their background, income or job description, will see a deduction in their tax liability," Parson said when announcing the proposal. "And that is a win for all Missourians."

The Missouri Budget Project has a different analysis.

The nonprofit estimates the governor's proposal would leave out a third of Missourians, particularly those on fixed income such as seniors and disabled populations, and require eventual cuts to state spending on education, public safety, healthcare and other needs.

Missouri Budget Project offered a new proposal for lawmakers to consider as they prepare to enter the Capitol chambers in mid-September. It keeps the governor's top income tax rate deduction from 5.3 percent to 4.8 percent but also calls for the elimination of Missouri's business income tax exemption and strengthening of the Working Families and Circuit Breaker tax credits.

Amy Blouin, Missouri Budget Project president and CEO, said the plan ensures every Missourian sees tax savings, one of Parson's goals for permanent relief.

"There are tangible ways that policymakers can provide real tax relief that helps struggling families make ends meet," Blouin said in a news release. "All too often tax proposals have focused on policies that provide giveaways to the very wealthiest, and little to nothing to those having the hardest time making ends meet."

According to an analysis from the Missouri Budget Project, the 20 percent of Missourians with the lowest income (taxpayers making less than $22,000 annually) could see an $11 tax reduction under the governor's proposed plan. The top one percent of income earners (taxpayers making $552,000 annually) could see a $6,024 tax reduction.

Under the nonprofit's proposed plan, the same bottom 20 percent could see a $324 tax reduction only through a combination of tax credits. The top one percent would see a $5,974 tax reduction but pay an extra $4,040, for a net reduction of $1,934.

Missouri Budget Project posits that the governor's tax cut is based on the temporary influx of federal funds that flowed into the state to combat the COVID-19 pandemic, and could therefore lead to reductions in funding for state services.

Parson said his office has been studying the sustainability of his tax cut for more than a year and didn't incorporate federal funds in its budgeting.

"We're not even considering all the federal money, so that's all taken off to the side and we know that has to be accounted for," Parson told reporters in August. "This is general revenue that we're talking about today and can we sustain that going forward in the state. We believe with that number we can. We believe that's a very conservative number to be able to do that, but it will have no effect on the federal dollars that are coming in."

But the nonprofit suggests Missouri's record revenues is in part propped up by the billions of dollars Missouri families and businesses received directly from the federal government during the pandemic, which temporarily stimulated economic activity and, therefore, state revenue collections.

The governor's office and Missouri Budget Project also disagree on his tax cut's impact on state revenue, with Parson's team quoting a $700 million reduction and the nonprofit projecting a $950 million loss in the first year of implementation, citing the Institute on Taxation and Economic Policy.

Missouri Budget Project's proposal has an annual cost of $586 million, it projects. Eliminating the business income tax exemption, also called the "LLC loophole," contributes to the smaller price tag.

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