Missouri House OKs $285 million in tax cuts

JEFFERSON CITY, Mo. -- The House approved at least $285 million of tax cuts Thursday targeted largely to retirees, but top lawmakers acknowledged the bill was too expensive for the state to afford.

The bill, which was sent to the Senate on 129-28 vote, was initially designed to exempt seniors' Social Security benefits from the state income tax at the cost of $100 million. But it has been expanded to include the pensions of workers who do not participate in the federal entitlement program, disability and survivor's Social Security benefits and up to $6,000 worth of interest on retirement plans.

The most recent price tag estimates the package would cost the state more than $285 million annually. But an estimate prepared Wednesday had put the cost at $468 million annually.

House Speaker Rod Jetton, the bill's sponsor, said even the lower estimate is still too high.

"Whether it's $468 [million] or $285 [million], we're going to have to cut it down either way," said Jetton, R-Marble Hill.

He said the state could afford to cut up to $200 million in taxes.

House leaders said they planned to ask the Senate to trim the tax breaks down to about $130 million.

Senate Majority Leader Charlie Shields concurred that $285 million was too high, but he also expressed concern about targeting the tax cuts to senior citizens.

"I like tax cuts that are aimed at generating jobs," said Shields, R-St. Joseph. "Do Social Security tax cuts do that? I don't know yet -- somebody's going to have to show me the economics of that."

Missourians whose income, minus half their total Social Security entitlement, is less than $25,000 for an individual, or $32,000 for a couple, already do not pay any state income taxes on their Social Security benefits. Most Missouri seniors fall under these income thresholds.

Critics of the House tax cut plan, which include Missouri AARP, the Missouri Catholic Conference and several social services advocates, argue that Missouri's budget surplus should be spent on expanding state programs that have been cut or reduced in recent years.

Rep. Clint Zweifel said there is extra money because of cuts made two years ago to the state's Medicaid program.

"The budget flexibility has not been built on a growing economy. This budget flexibility has been built on health-care cuts," he said.

But aside from legislative critics, the tax cut proposal faces a potential roadblock from a 1989 court case. The U.S. Supreme Court, in Davis v. Michigan, threw out that state's policy of taxing federal pensions but not those from state and local governments.

Supporters of the proposed tax cut have said Missouri can get around the legal challenges because the courts require equal tax treatment of pension plans unless there is a sound reason. They say lawmakers have that reason because the pension plan benefits that would be made tax exempt under the bill are the only pensions that are provided in place of Social Security benefits.

The bill passed with wide bipartisan support, but some Democratic critics said lawmakers could do better and spend less money.

Zweifel, D-Florissant, said increasing a state income tax credit based upon how much is paid in property taxes, establishing an earned income tax credit based on the existing federal model, plus a more modest Social Security benefits income tax exemption would cost the state about $114 million and better target the taxes.

Zweifel's proposal would increase the eligibility level for the property tax credit from $25,000 to $30,000 for one person and $27,000 to $34,000 for a couple. It would also exempt Social Security benefits for singles earning less than $40,000 and couples earning less than $50,000.

--—

Retirement tax exemption is HB444

On the Net:

Legislature: http://www.moga.mo.gov