Missouri House again votes to eliminate income tax on capital gains
Missouri lawmakers are playing tax cut tennis, and on Monday the state House served its latest offering when it narrowed the differences with the state Senate in a bill that helps wealthy taxpayers and some who are at the bottom of the income scale.
The proposal is the smallest, in terms of revenue reductions, of several bills intended to cut taxes this year. It exempts long-term capital gains — profits on investments or property held for more than a year — from state income tax.
It also boosts the income limits and credit amounts for the refundable tax credit known as the circuit breaker, which helps defer the cost of property taxes for low-income seniors and people with disabilities.
Those provisions mirror the language in a bill that has already passed the Senate but has not received a final House vote. One key difference is that the Senate-passed version would adjust the circuit breaker credit amounts for inflation starting in 2027, while the bill approved Monday does not.
It also does not include the sales tax exemption for diapers and feminine hygiene products included in the Senate-passed bill.
House Speaker Pro Tem Chad Perkins, a Republican from Bowling Green, said the latest plan was intended to send the Senate something it could accept.
'We feel like the Senate will be able to pass our language on this as is,' Perkins said.
The bill began as a proposal to allow the Department of Revenue to forgive interest and penalties when it has to prorate tax credits because claims exceed the annual allowance. For the past three years, people claiming Missouri's food pantry tax credit found they didn't get the full value when the state Department of Revenue reviewed their returns.
The bill passed by a 92-58 vote, with 11 Republicans voting against it along with all Democrats. The bill needs only a final Senate vote to send it to Gov. Mike Kehoe.
During debate, Democrats warned that big tax cuts now are a mistake because of uncertainty, both in future support from federal funding and the possibility of an economic recession due to tariff and other policy shifts under President Donald Trump.
'Wait for another year. Let's see what happens with the U.S. economy before we cut another tax,' said state Rep. Steve Butz, a Democrat fromSt. Louis. 'We need to go slow, because you can't reverse this decision.'
The tax limitations in the Missouri Constitution would require a statewide vote if, in a year or two, lawmakers decided they had cut taxes too much.
The fiscal note for the bill, which gives the official estimate of whether it will increase or decrease state revenue, states that exempting capital gains would reduce revenue from the individual income tax by about $110 million annually, with another $180 million reduction with the corporate cut kicks in.
Outside observers question that estimate, with the left-leaning Institute on Taxation and Economic Policy estimating that the revenue reduction could be $600 million or more.
Since 2014, when lawmakers enacted a tax cut over the veto of then-Democratic Gov. Jay Nixon, Missouri's top income tax rate has fallen from 6% to 4.7%. Two future tax cuts, to a 4.5% rate, are already in state law and will take effect if general revenue growth hits targets.
The changes in the circuit breaker credit would reduce state revenue by about $75 million annually.
People 65 and older and those with a qualifying disability are eligible for a credit against property taxes on their residence. Since 2008 the maximum credit for homeowners has been $1,100, while for people who rent their home the maximum credit is $750.
The legislation would increase the credit for homeowners to $1,550 and for renters to $1,055.
The proposal would also increase the maximum income for claiming the credit from $27,500 for single taxpayers who rent to $38,200 and for single taxpayers who own their home from $30,000 to $42,200. For married couples, the limit would be $41,000 for renters and $48,000 for homeowners.
Most of the debate Monday focused on whether the circuit breaker changes were enough to balance the benefits being provided to wealthy taxpayers.
'This is an amendment that our senior citizens need for us to do, as it truly helps those in the lowest income brackets,' said state Rep. Mark Matthiesen, a Republican from O'Fallon. 'Also those with disabilities need our help.'
Democrats said the circuit breaker changes were designed to mask the problems that would be created by additional large income tax cuts.
'It's the arsonist,' said Rep. Mark Boyko, a Democrat from Kirkwood, 'telling us that they'll give us 10 seconds to go rescue the grandfather clock.'
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