Missouri’s first tax cut in nearly a century appears to be on hold for at least a year.
With the end of the fiscal year striking at midnight June 30 an early review of the numbers shows state revenue growth failing to hit the required threshold for the tax cuts to go into effect as planned in 2017.
While that means the state won’t have to adjust to a loss of an estimated $620 million in tax revenue over the next five years, it also means income tax rates paid by individuals won’t be dropping by a percentage point.
According to an end-of-year revenue report obtained July 1 , total revenue growth for the year was just $77.6 million through June 30, or less than 1 percent.
That’s far off the $150 million mark needed to set the tax cut process in motion. And, it is less than what Democratic Gov. Jay Nixon’s office and Republican legislators expected when they made revenue estimates during last year’s budgeting process.
“We didn’t grow as much as we thought,” said Nixon budget chief Dan Haug, whose office had predicted revenue growth of 2.8 percent.
“We’re pretty far below what we both estimated,” added Rep. Scott Fitzpatrick, a Shell Knob Republican who handled the budget as it moved through the House this spring.
Despite the drop, Haug said Missouri’s economy is “pretty strong.”
Sales taxes were up by about 4.4 percent, while income taxes were up 3.9 percent. Corporate income tax income dropped by 16 percent, but Haug said that the numbers fluctuate based on how companies handle their taxes.
Under the tax cut plan, the state’s top personal income tax rate would drop to 5.9 percent from its current 6 percent beginning with taxes paid in 2017. It would drop to 5.5 percent over the next five years. There also would be a new 25 percent deduction on business income reported on individual returns.
The plan also would update the state’s tax brackets, which haven’t been changed since 1931, and increase by $500 the personal deduction for individuals with gross income below $20,000.
Those reductions, however, would only go into effect if state revenue grows by at least $150 million. The state fell about $72 million short.
Fitzpatrick suggested that the administration may have intentionally issued a large number of income tax refunds in June in order to drive down the end-of-year growth figure.
“It’s a pretty big difference in refunds this year,” Fitzpatrick said.
Nixon, a Democrat who was opposed to the tax cut plan, scoffed at the claim.
In a year that saw tax refunds delayed by the Missouri Department of Revenue because of tougher checks for fraudulent returns, Nixon ordered the agency in May to move faster in processing the refunds.
“I found it bizarre that these people are saying some of the stuff they are saying,” Nixon told reporters earlier. “You’ve got to really stretch to come up with an argument that you shouldn’t pay tax refunds.”
“I’ve not run into a single person who said, ‘Governor, tell you what, will you please hold my tax refund.'”