Lawmakers reduce individual income tax but wrestle with cut to corporate taxes

JEFFERSON CITY, Mo. -- Missouri lawmakers on Thursday passed a bill to cut the individual income tax rate from its current 5.9 percent to 5.5 percent for most residents, a big win for Republicans in the final hours of the 2018 annual session.

The top income tax rate would drop .4 percent starting in January, if the measure is made law. Individuals would gradually see the rate drop to 5.1 percent over time, if the state meets revenue targets.

To offset the loss in revenue, lawmakers proposed reducing a federal income tax deduction. Earlier estimates of the bill would put its cost at $5.8 million if fully implemented in fiscal year 2023, but that doesn't cover some changes made in the Senate.

House lawmakers voted 101-40 in favor of the bill, which passed the Senate 24-9 on Tuesday. Today is the deadline to pass legislation.

Still pending is a proposal to cut the corporate income tax rate from its current 6.25 percent to 3.9 percent. To balance out the loss in revenue, the proposal would change how some multistate corporations can calculate their taxable income.

House lawmakers scaled down the proposal earlier Thursday after House Budget Committee Chairman Scott Fitzpatrick said the Department of Revenue made a $60 million mistake in its earlier calculations.

Democratic Rep. Kip Kendrick, of Columbia, said the Revenue Department discovered the error but didn't properly disclose that to the Legislature. He called that "gross negligence" by the agency.

"People should lose their job over this," Kendrick said.

Department of Revenue director Joel Walters in a Thursday statement said the agency realized the mistake after a May 1 hearing on the tax proposal. But House lawmakers then made substantial changes to the bill, prompting another fiscal update. Walters said the agency fixed its calculating error in the subsequent estimate, but didn't notify lawmakers of its earlier mistake because that version "was believed no longer relevant."

Earlier estimates projected the changes would grow state revenues by close to $10 million starting in fiscal year 2020, but the latest fiscal review released Wednesday put the price tag at more than $52 million.

"I just want the budget to be balanced," Fitzpatrick said. "I vote for tax cuts, but if we're going to do that it needs to not impact the budget we just spent four-and-a-half months working on and passing."

Fitzpatrick said the House version of the corporate tax bill could cost as much as $15.4 million starting in 2020, much less than the Senate's version.

Some lawmakers were still skeptical.

Democrats tried unsuccessfully to go with a higher 4.2 percent corporate tax rate to avoid the potential roughly $15 million price tag.

Both Republicans and Democrats raised concerns about the speed of changes in the final days of session.

"This is crazy," said Republican Rep. Kevin Engler, of Farmington. "We don't know what this is going to do. But, let's vote on it. Let's hope that we send it back to the Senate, and they kill it."