JEFFERSON CITY – Gov. Mike Parson on Wednesday put his signature to an election-year income tax cut, announcing the incremental cut as a “fiscally conservative” move that will put money back in taxpayers’ pockets.
The state’s top income tax rate is to be reduced from 5.3% to 4.95% starting in January, under a plan drawn up by lawmakers in a month-long special session. Then, when certain sales thresholds are reached, the rate slowly decreases to 4.5%.
“Now is the time to give back to Missourians. We’re offering real, lasting relief to Missouri residents,” Parson said at a signing ceremony for the bill at his office.
Parson signed two bills on Wednesday. Along with the $1 billion tax cut, he approved a package of agricultural business tax incentives that will cost the state an estimated $40 million.
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“Today is a big win for agriculture,” said Parson, who also runs a small cattle farm at his home in Bolivar.
The tax cut comes as record-breaking waves of tax receipts have swept the state’s checkbook, fueled in part by inflation, rising wages and more than $10 billion in pandemic aid from the federal government.
Parson acknowledged the robust growth in tax revenue, saying it was due to his controversial decision to keep businesses open during the COVID-19 pandemic.
Democrats urged Republicans, who control the House and Senate, to be cautious about managing future budgets as one-time funds flow in from the federal government.
“I think the Republican majority should send President Biden a very big thank you card,” said Senate Minority Leader John Rizzo, D-Independence.
The Missouri Budget Project, a nonprofit think tank that analyzes state spending and revenue, estimates the cost of the first year of the 4.95% tax rate cut at more than $500 million.
For taxpayers making $30,000 annually, the move from 5.3% to 4.95% will reduce their tax bill by about $10 annually. Someone making $86,000 will see a $120 reduction in their annual income tax bill. People earning $152,000 will get a $320 rebate, the group said.
According to the organization, the over $1 billion in lost revenue comes as the state struggles to provide services.
“Even with Missouri’s current robust budget, as a state we have many unmet needs — including struggling to provide care for abused and neglected children, as well as Missourians facing mental health crises,” the group said in a statement. “Vulnerable Missourians — including children — are being put at risk because Missouri has the lowest-paid government employees in the country, resulting in job vacancies.”
Parson said he will ask the Legislature in January to allocate money for another round of pay rises for state employees in the next budget, after successfully lobbying for a 7.5% pay rise this year.
The farm tax credits, meanwhile, will “provide vital support to farmers and ranchers,” the governor said.
The loans, which affect meat processors, biodiesel and ethanol producers, young farmers and forestry, were vetoed by Parson earlier this year after lawmakers extended them by just two years.
Under the plan, delivered to Parson by the Senate on Tuesday, lawmakers extended the tax break to six years, which the governor said will help industries with fiscal planning.