JEFFERSON CITY 鈥 The Missouri Senate on Monday voted to send a tax cut bill, with provisions designed to benefit both the ultra-wealthy and the working class, back to the House for final approval.
The Monday afternoon floor vote came after a contentious fiscal oversight committee hearing, during which lawmakers questioned the accuracy of the financial analysis of the bill鈥檚 impact on state revenues.
It ended up passing 27-6, with five Senate Democrats joining all but one Republican.
The measure, if it becomes law, would allow Missourians to claim an income tax credit for capital gains reported to the federal government. Capital gains taxes are paid when someone sells stocks and property for a profit.
Missourians could deduct 100% of all capital gains income reported to the IRS from their state income tax liability under the proposal.
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A bill offsetting federal capital gains taxes mostly benefits the rich. Just 8,230 Missourians who have an income over $1 million annually accounted for more than half of the state鈥檚 capital gains, according to 2022 tax year data.
According to a nonpartisan fiscal analysis, the bill, once implemented, could cost the state about $111 million annually.
To balance the bill, Democrats and skeptical Republicans added new sections to help more Missourians. Under the legislation, diapers and feminine hygiene products are exempt from state sales tax. The bill also beefs up a tax relief program for low-income seniors so more can apply.
鈥淪o I guess we鈥檙e going to help the very rich and the very poor,鈥 Sen. Mike Cierpiot, R-Lee鈥檚 Summit, said in an interview with the Post-Dispatch. Cierpiot was staunchly against the capital gains provisions but now supports the bill with the added support for seniors.
State Sen. Mike Cierpiot, R-Lee鈥檚 Summit, right, speaks on the Senate floor on Thursday, May 16, 2024, one day before the end of legislative session.
Those additions came at a cost. The final package is expected to cost the state almost $350 million annually.
Rep. Chad Perkins, R-Bowling Green, the legislation鈥檚 sponsor, told the Post-Dispatch he is intent on getting it through the House no matter how much the proposals cost.
鈥淲e鈥檙e going to give get some relief to the people that need it,鈥 Sen. Doug Beck, D-South 51黑料 County, said.
Just as it seemed the bargain between Democrats and Republicans had been struck, a potential error in the legislation鈥檚 fiscal analysis almost derailed its progress.
The Institute on Taxation and Economic Policy, a left-leaning think tank, published articles on its website and told that it thinks the state鈥檚 fiscal analysis far undercounts how expensive the capital gains tax cut will be.
They argued the projection couldn鈥檛 be that low, with high-income Missourians collecting the lion鈥檚 share of capital gains. Carl Davis, the institute鈥檚 research director, could cost the state about $600 million annually.
鈥淗ow can we be off by half a billion dollars,鈥 Beck asked at the fiscal review hearing Monday.
鈥淚 don鈥檛 know where they got their numbers,鈥 Jeani Hancock, from the Missouri Department of Revenue, responded.
鈥淲e actually put every single person鈥檚 return in our model, and we run them and we pull out exactly what was claimed.鈥
The crux of the issue comes down to how the institute calculated the projected cost. They took the total number of capital gains, which is over $13 billion, and multiplied it by the state鈥檚 top tax rate, 4.7%. That results in over $600 million people could potentially claim against their Missouri taxes.
It鈥檚 not that simple, Hancock said. People may claim capital gains on activity they have in Missouri but not actually live in the state, meaning they wouldn鈥檛 be eligible for the program. Hancock added that people with high incomes are able to bring their tax burden down greatly and thus won鈥檛 be able to claim as much capital gains against their Missouri tax burden.
Democrats and Republicans on the committee also raised concerns that the fiscal analysis misrepresented how much the diaper and feminine hygiene product exemptions would cost local governments. The provision only eliminates the state鈥檚 portion of the sales tax, not the local option sales tax, so local tax revenues shouldn鈥檛 be affected.
The legislation passed the fiscal review committee on a narrow 4-3 vote.
鈥淚 think we will have success if we get rid of the capital gains tax,鈥 Gov. Mike Kehoe said at a Missouri Press Association event earlier this year.
If the House gives approves the proposal, the bill will land on Kehoe鈥檚 desk, where he鈥檚 expected to sign it.
The legislation is Hous
