Missourians could face higher sales tax after the Missouri House of Representatives approved legislation last week to slash income taxes and hike sales tax to make up the difference.
Gov. Jay Nixon has vowed to veto the legislation, saying the tax reforms could hurt Missouri's economy.
"Senate Bill 26 would raise taxes on all Missourians and increase the cost of almost everything they buy," Nixon wrote in a letter to Missouri senators, who approved a similar version of the bill. "By making it more difficult for all Missourians to make ends meet, Senate Bill 26 would hurt families and weaken our economy — without even giving them a say."
The bill proposes cutting income taxes by two-thirds of a percentage point over the next five years. Corporate income taxes would be cut by three-quarters of a percentage point. To offset some of the revenue losses, sales tax would be raised by three-fifths of a cent, with some of the funds going to schools, roads and the construction of a new mental hospital in Fulton, according to the bill's text.
Nixon said the sales tax increase would hit veterans and seniors living on fixed incomes especially hard.
"Making a veteran with aches and pains pay more for an aspirin so that an S Corporation can get a tax cut does not reflect our values or our priorities," Nixon said. "I have long opposed schemes like this one that would shift costs onto families because they reflect the wrong priorities and do not work." The Senate version of the bill was different in several key ways and included an individual income tax cut of three-quarters of a percentage point and a sales tax cut of one-half cent. It also did not earmark additional sales tax funds for specific programs. The Senate is currently reconciling the House bill.
The bill's sponsors say they hope the bill will help Missouri's tax rates stay competitive with neighboring states like Kansas and Oklahoma, which have approved income tax reductions in recent years.
"Tax reform is a crucial part of our economic development policy," Sen. Tom Dempsey, R-St. Charles, said. "Providing tax relief to all working Missourians, employers and businesses will make us one of the most competitive states in the country. The Missouri Budget Project, a nonprofit group, opposes the tax cuts, saying they have hurt neighboring states and could cost Missouri as much as $1 billion in lost revenue in the coming years. "In Kansas, the only things tax cuts have created are a $700 million budget shortfall and a funding crisis for schools and other basic public services," Executive Director Amy Blouin said in a statement. Sen. Paul LeVota, D-Independence, said he opposed the bill because it would further reduce state revenues. "We've cut revenue to the point that it's reduced the state government," LeVota told the Senate. "There's a race to the bottom that we're going to win against Kansas because we're going to go right to the bottom." The House version of the bill passed 90-68, despite the House's Republican supermajority. Republican lawmakers who voted with the Democrats left House Republicans short of the 109-vote two-thirds majority needed to override a veto.