Missouri cranking out even more tax cuts amid cash surpluses

JEFFERSON CITY, Mo. (AP) — Just six months after passing what was billed as the largest tax cut in Missouri history, the Republican-led state House voted Tuesday for an even bigger income tax cut that could return over $1 billion annually to individuals, corporations and retirees.

The Missouri legislation is the latest in a series of aggressive tax reductions that swept across U.S. states last year and have continued into 2023 — even as some warn that it might be wise for states to hold on to record large surpluses amid economic uncertainty.

“Wouldn’t it be a good idea for us to all just pause for a year?” Democratic state Rep. Deb Lavender asked rhetorically before her Republican colleagues endorsed the tax cut on a 109-45 party-line vote.

The Missouri legislation still has a ways to go — it needs a second House approval before it can move to the Senate and then to the governor. But legislatures and governors in several states already have given final approval to tax cuts and rebates in the first few months of year. In some states, those tax breaks have been pushed by Republicans, but in others by Democrats.

Some Republican lawmakers argued that more tax cuts ultimately would give residents more money to spend and lead to continued growth in state tax revenues.

Last October, Republican Gov. Mike Parson signed legislation cutting the top individual income tax rate from 5.3% to 4.95% effective Jan. 1 and allowing for an eventual reduction to 4.5% if revenues continue to grow. This year’s bill doesn’t wait to see whether that growth occurs. Instead, it would cut the individual income tax rate to 4.5% beginning in 2024 while also reducing taxes on corporations and Social Security benefits and enabling even more income tax cuts if future revenue targets are met.

“This is not reckless. This is a meaningful step,” Republican state Rep. Doug Richey said in response to critics. “This is simply slowing down the rate of growth for tax revenue.”