The federal tax cut will reduce Missouri revenue by a modest amount because the two biggest changes almost cancel each other, according to Joseph Haslag, a University of Missouri economist who helps state government project tax receipts.
In an interview last week, Haslag said the Economic and Policy Analysis Research Center would issue a report later this week explaining the estimate that the tax cut will reduce state revenue by about $58 million. Haslag, who holds the Kenneth Lay Chair in Economics, is the director of the research center.
The increased standard deduction, which by state law is also applied to Missouri income tax returns, if it was the only change would cut state revenue by $565 million, Haslag said. But the provision eliminating the personal exemption, allowed in Missouri law only if a personal exemption is allowed on the federal return, adds back about $440 million, he said.
The estimate is based on the data from tax returns filed in 2016 and only looks at the impact of the individual income tax changes on that information, he said.
“This is just a simulation model that computes the immediate impact,” Haslag said. “Basically it is a tax calculator.”
The findings will be part of the estimate for overall changes in Missouri revenue that will guide Gov. Eric Greitens and lawmakers as they prepare a budget for the year beginning July 1. Along with the federal tax changes, a state tax cut will take effect Jan. 1, dropping the top rate to 5.9 percent and exempting 5 percent of “pass-through” business income from taxation.
This year’s budget was based on estimates made in December 2016 of general revenue collections of $9.4 billion, a growth rate of 3.8 percent. That estimate will be adjusted at the same time the estimate for the coming year is announced.
“We’re doing the best we can,” Haslag said. “This is a complicated bill on the individual income tax.”
The projected loss of revenue is about 0.6 percent of the general revenue fund, a modest amount compared to recent year-to-year changes in revenue that have ranged from a high of 10.1 percent growth in fiscal 2013 to a low of a 1 percent decline in fiscal 2014.