Tax Cut and Reform Package Passes the House
Earlier this year, Show-Me Institute analysts testified on both House Bills 816 and 660, back when they were still separate corporate income tax proposals. Since then, the bills have been combined and amended, and that combined bill was just passed in the House. The bill is now on track to head to the Senate in the coming days. Per a Missouri Independent story:
The bill would cut the top rate on personal income taxes, cut the corporate income tax rate in half and exempt Social Security payments from taxation. State Rep. Dirk Deaton, R-Noel, said the bill would promote economic growth, noting that future tax cuts included in the bill only take effect when triggered by revenue growth.
“This is really just limiting the growth of government,” Deaton said. . . .
The bill would accelerate a tax cut approved in September that will reduce state revenues by almost $800 million annually when fully implemented. The corporate tax cut would be the second in less than five years.
House Speaker Dean Plocher, R-Des Peres, made a corporate tax cut a top priority for the chamber as the session opened.
For the individual income tax, the rate would drop from 4.95% to 4.5% immediately, eventually dropping to 4.05% after a series of triggers. The corporate income tax would drop from 4% to 2%, and then to 0% after a series of triggers. The exemption for all social security income would be immediate.
I’ve pushed for reductions and eliminations of the individual and corporate income taxes for years, so it should come as no surprise that this plan is music to my ears. Income taxes are the most destructive taxes from the perspective of growth, and among them, corporate income taxes are the most destructive of them all. Reducing both with the intent of eventual elimination is sound policy.
Further, while the targeted social security carve out is understandable, eliminating taxation for certain groups of people can make the overall objective of reducing and eliminating a tax for everyone more difficult over time, with fewer and fewer people carrying the cost of government. This concern applies to an even greater degree to corporate handouts like economic development tax credits, such as the one for film studios being debated this session. Fortunately, economic development tax credits aren’t involved in this bill, at least not yet.
Thankfully, the scope of HB 816 and 606’s “targeted” tax policy is limited; the bulk is solid in principle and practice. We’ll keep you posted on the bill’s progress.