Taxes have been a hot topic in the political world lately. President Donald Trump has been calling for reduction of corporate taxes. This is something he talked about when visiting Missouri in August. However, income tax is a hot button topic in Missouri as well.
State Sen. Andrew Koenig, R-Manchester, boasted on Twitter that a law he helped pass would be the first cut to Missouri income tax in over a century.
"The bill that I carried cutting MO’s income tax for 1st time in over 100 years will start its 1st phase in jan 1 2018," the senator tweeted on Aug. 30, 2017, with the hashtag "moleg" and tagging Missouri State Treasurer Eric Schmitt.
Over a century? This seemed a little bit out there. When Koenig’s office did not answer our inquiry, we started digging for ourselves.
Koenig was referring to Senate Bill 509 from 2014. Koenig was the House handler for the bill, as a state representative at the time.
What does the now law actually do to income tax though?
Simply put, income tax rates will decrease by a tenth of a percent every year until the top tax rate is a half of a percent lower, or 5.5 percent instead of the current 6 percent.
There will also be an increase in income tax deductibles for business income until it reaches 25 percent.
To trigger the start of the law, the state’s gross income had to exceed income in one of the three previous years by $150 million. That happened in the last fiscal year, so now the bill will go into effect on Jan. 1, 2018.
The prospect of decreasing income tax is appealing for taxpayers, but is this really the first time it is happening in over a century?
We talked to Anne Rottman, the library administrator at the Missouri Legislative Library, about the last time Missouri saw a reduction in income taxes.
"I don’t think there ever has been a cut," she said.
It turns out, she’s right.
Missouri income tax was established in 1917. This tax was for a half of a percent annually on individuals’ income. Income tax saw revisions throughout the years. Graduated tax brackets were created in 1939 and have not been changed since 1972. The limit for deduction for federal income taxes was created in 1993. There were various other revisions and adjustments as well.
However, none of these were decreases in the tax levied.
For a century, tax law has been growing into what income tax looks like today. Why has there always been an increase and never a decrease?
"No idea why this approach took so long," said Joseph Haslag, an economics professor at MU.
Others seem to be stumped as well.
The half-percentage reduction of the tax rate per year gives the state legislature some time to adjust to having less revenue for the budget. Meanwhile, there’s a more immediate impact for individuals: Tax brackets will now be adjusted annually based on percent increase in inflation.
However, when it comes to the economy overall, it isn’t as exciting as it sounds, Haslag said.
"For a revenue-test state like Missouri, the tax cut reduction will have small, very small, positive effect on Missouri’s economic growth," Haslag said.
And while Koenig is correct that the state’s income rate has never decreased, it’s important to note that the legislature has enacted many income tax deductions that have the same effect of lowering someone’s state income tax bill. Beginning in 2016, for example, 100 percent of a military pension income became exempt from Missouri state tax. The state also created a new deduction for people from Missouri who relocated a business to Missouri.
Koenig said that Senate Bill 509 would cut Missouri income tax for the first time in over 100 years. The truth of the matter is Missouri income tax has never been cut. Income tax laws were put in place in 1917. This was 100 years ago exactly. It’s not over 100 years, but Koenig was pretty close.
It’s worth noting, however, that Missouri has created a long list of deductions that could reduce a person’s state income tax bill without having to decrease the overall tax rate.
Koenig’s statement is accurate but needs that clarifying information. That meets our definition of Mostly True.