JEFFERSON CITY — A major push for state tax reform was approved by the House Ways and Means Committee on Monday. Among key components of the lengthy bill are income tax cuts, an alternative to increasing the gasoline tax and the removal of tax credits for senior renters.
House Bill 2540 is sponsored by House Speaker Pro Tem Elijah Haahr, who highlighted income tax cuts as one of the bill’s major tenets. It would reduce both individual and corporate income tax rates. The top individual rate would be 5 percent. Corporations also would be taxed at 5 percent, but at a flat rate. This proposal differs from Gov. Eric Greitens’ proposed income tax cuts, which would reduce the top individual tax rate from 5.9 to 5.3 percent and the corporate income tax rate from 6.25 percent to 4.25 percent.
The bill’s fiscal note estimates the proposals could result in hundreds of millions of dollars in losses in general revenue over the next three years.
Haahr found fault with the fiscal note’s estimate and said the Missouri Budget Project, a nonprofit public policy analysis organization, gave the bill a much more favorable fiscal impact. He also said the five- to 10-year outlook for the bill is a lot more positive because there would be revenue generated to make up for the initial losses.
The legislation diverges from a commonly proposed method for attempting to fix Missouri’s roads and bridges: an increase to the gas tax. Instead, the bill would raise vehicle-use taxes to adjust them for inflation. Haahr said this would be done to address the increasing use of electric vehicles.
“It’s a declining source of revenue, and there’s cars using the roads that aren’t paying any part of that,” Haahr said of the gas tax, because of hybrid and electric cars. Haahr predicted his proposal would generate around $2 billion for improving Missouri’s roads and bridges over the next 10 years.
The bill was amended Monday to address several issues. The biggest change came in restoring a 2 percent discount granted to vendors who file their taxes on time. Haahr initially repealed that in the bill, but after hearing pushback from small businesses, he reinstated the 2 percent discount up to $1,000 per month.
“I still think as base fiscal policy that it’s our goal to create more of a standard, stable flat rate,” as opposed to having too many exceptions, Haahr said. “In having a lot of deductions and ‘one-offs,’ you have people try to game the system. At the same time, I don’t want to be raising taxes on small businesses,” Haahr said.
The bill also proposes removing the “circuit breaker” tax credit that allows elderly and disabled renters to get a property tax credit. Tax reform bills last session tried to remove the tax credits, but Democrats fought to preserve them.
The Ways and Means Committee passed the bill with a 6-3 vote, which ran along party lines. Rep. Brandon Ellington, D-Kansas City, proposed an amendment to the bill that would have restored the “circuit breaker” tax credit. The amendment was shot down 6-3. . Ellington, the ranking Democrat on the committee, said Democrats would have voted in favor of the overall bill if the tax credit had been restored.
Haahr said he removed the tax credit because he believed it was outside the intent for which it was created, which was to reimburse the elderly and disabled for the cost of their property. He believes renters given this tax credit aren’t paying any property tax anyway. Ellington argued renters are paying property taxes because their landlords charge higher rent to pay those taxes.
Last year, the Missouri Budget Project estimated that more than 100,000 Missourians would lose these tax credits if they were taken from renters. Both representatives said there are more renters than landowners receiving these tax credits.
Ellington is worried renters won’t be able to pay their rent when they no longer benefit from the credits, which are capped at $750 per year. He’s worried that this would in turn affect the landowners who would lose rent revenue. Haahr said landlords would take this into account.
“When government subsidizes anything, there’s going to be a natural market correction,” Haahr said. “The more free student loans we have, the more universities will charge for tuition because it’s like a pass through. I believe that landlords will recalculate as soon as that goes away. They’ll have to recalculate because there will be a market correction. These people say, ‘I can no longer afford this, because I was reliant upon this.’ They’ll have to at some point lower the rent.”
“I could believe in that if I still believed in Santa Claus, but I don’t believe in fairy tales,” Ellington said. “That doesn’t even sound reasonable.”
The Senate spent several hours Monday debating a different tax reform proposal, but did not approve a final version.
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