While federal lawmakers iron out differences to the House and Senate tax reform plans, Republican Senators in Missouri have filed a bill for the 2018 session that will overhaul Missouri’s tax code. The Missouri Economic Relief Act, introduced by Senator Bill Eigel, is the most comprehensive tax reform legislation in state history.
This move could not come at a more pressing time for individuals and taxpayers in the state: Missouri ranks 44th for private sector job growth, 47th for GDP, and 46th for personal income growth over the past decade. These numbers should not come as a shock considering more money than ever is sent to Washington DC and Jefferson City. But by only gradually lowering the top income tax rate from 5.9 to 4.8 percent, lawmakers could create a more competitive tax climate relative to neighboring states such as Oklahoma and Kansas, where top marginal rates are 5 and 5.2 percent, respectively.
Opponents will recycle their usual talking points that lowering the top rate will only be a boon for the wealthy, as we continue to hear over and over again. However, their argument could not be farther from reality. As it stands, an individual can have an income that is below the federal poverty line yet still pay the highest rate of state income tax. In addition to lowering the top rate, the tax bill will eliminate the bottom four tax brackets, bringing the total number of brackets from eleven to seven.
To help pay for the tax plan, legislators will reduce many of the deductions and credits that lead to tax complexity. Deductions that will be removed include the federal income tax deduction, the business deduction for paying sales tax on-time, and many others. The plan will also increase efficiencies in the government workforce to reduce spending and make slight adjustments to the state gas tax to increase revenue.
According to the bill’s sponsor, even before taking into account the increased growth effects, the plan is already 92 percent paid for. Lawmakers should follow the lead of North Carolina, which has provided a model for what pro-growth tax reform and conservative fiscal policy should look like. Done correctly, and with a long-term mindset, will ensure Missouri taxpayers and businesses regain their position among the most prosperous in the country.