The Missouri Senate gave approval in the first round on Tuesday of a $335 million income tax cut over opposition from liberal members who saw fiscal problems ahead of time and conservative members. the traditional ones who want a deeper cut.

The bill, which needs a final vote before moving to the Missouri House, is a watered-down version of the $700 million tax cut sought by Gov. Mike Parson.

Senator Lincoln Hough, a Springfield Republican who supports the bill, said he thinks it will be acceptable to Republican House leaders.

“We’ve been working with the Senate leadership the entire time,” Hough said after the Senate vote. “I hope it ends up being a good place for both sides of the building.”

Parson called a special meeting after vetoing a plans for $500 million in savings included in the state budget. He said the recovery plan was underfunded and the government surplus should be met with permanent tax cuts.

The bill given initial approval by the Senate would reduce the top tax rate to 4.95% in 2023 and add four future reductions, driven by increased income. When fully implemented, the maximum tax rate will be 4.5%.

Parson’s plan would accelerate five cuts already planned in state law, bringing the top rate to 4.8% by 2023. No future cuts were proposed. Parson’s opinion.

Parson’s plan also would have increased the standard deduction — the amount that can be deducted from taxes — to nearly $15,000 for individuals — and eliminated the first $1,000 of taxable income. more than that.

The bill approved in the Senate does not increase the standard deduction but includes the $1,000 exclusion sought by Parson.

the financial official rating prepared for the bill of the Senate predicts that it will reduce the income of the state by 335 million dollars in 2023 because of the cuts that have been established that will bring the rate for the year to 5.2%. When fully implemented, the bill would reduce taxes by $371 million a year more than the cuts already set by state law.

But the Missouri Budget Project, a liberal think tank, believes the impact of the tax cuts is greater. The group calculates that the tax cuts will reduce state revenue by $513 million in 2023 and $1.15 billion annually when fully implemented.

“Low-income people will be hit the hardest by the rate hike,” said Jeremy LaFaver, a lobbyist for the Missouri Budget Project. “If we were concerned about their situation, they would have been considered in this bill.”

Taxpayers with incomes of $22,000 or less – the lowest 20% of earners in Missouri – will each receive an average of $3, according to a study by the Missouri Budget Project. For the immediate family of median household income $57,290 will see an average reduction of $66 in 2023. Those in the top 1% of income earners, earning $552,000 or more annually, will see a reduction of $4,214 in 2023.

During the debate on the floor, members of the Democrats said they were worried that the tax cut would force the state to spend the revenue of $4.4 billion to maintain the current level of services. That’s not enough, said Sen. Jill Schupp, D-Creve Coeur, to help schools keep teachers and the state keep staff.

The Missouri Children’s Division is suffering from cycles of high and low morale with four times the standard load, Schupp said. Lawmakers can’t easily reverse a deeply sweeping tax cut.

“In doing something like this, my concern is, once it’s in place, there’s no going back without a vote,” Schupp said.

Hough defended the tax plan as a prudent way to cut.

“I don’t think it’s going to break the state by any means,” Hough said.

Current future reductions in state law will be effective if income in at least one fiscal year exceeds the highest of the three preceding years. $150 million. After the cuts for 2023 mandated by the bill, the cuts for 2024 require an increase of at least $175 million.

The three additional reductions require a revenue increase of at least $200 million above the maximum general revenue of the previous five years. Hough’s bill also raises the limits for future tax cuts by adjusting the cost of living to income.

The fiscal year ended June 30 saw total revenue of $12.9 billion. If inflation is 5% per year, the revenue in 2024 should be about $14.4 billion for the tax cuts that will take effect in 2025.

Sen. Bob Onder, R-Lake St. Louis, said he would like to see Missouri eliminate the income tax. He proposed a bill that would, for at least two decades, raise the tax rate to zero.

“Why not continue until we reach zero?” he asked Hough.

That would be a good goal, Hough said, noting that most Republicans have already offered big tax rate cuts.

“I think we’re working in that direction,” Hough said.

Democrats don’t want a permanent cut in state revenue in response to a historic surplus created by an unlikely scenario, the House Minority Leader said. -Elder John Rizzo of Independence.

But the bill could be worse, he said.

“I believe this is the best possible outcome,” Rizzo said. “We will not stop pointing out these things and we will not stop pushing the majority party to spend money where we think we need it.”

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