Missouri House committee to decide on bill proposing 4% flat tax for ballot placement

The House committee on taxes is scheduled to vote on Tuesday on a bill that aims to establish a flat tax. Additionally, the committee will hold a public hearing on two joint resolutions that address the eventual elimination of income and property taxes.

Rep. Bishop Davidson, a Republican member of the Special Committee on Tax Reform, sponsors all three proposals.

The committee will vote on House Bill 2919 following a hearing held on March 12 regarding the proposed state constitutional amendment that mandates voter approval.

The proposal aims to simplify the personal income tax system by replacing the current tax tables based on income brackets. Instead, a flat tax rate of 4% would be applied to all income exceeding $1,000 starting in 2025. It is important to note that if the proposal is approved in the upcoming general election in November, the implementation of this change will not take place until the 2027 tax year.

According to the fiscal note, the bill is projected to have significant financial implications for the state. It is estimated that there will be a decrease in the state’s general revenue, with the figures reaching $357 million in fiscal year 2025, $781 million in 2026, and a staggering $874 million by 2028 if the bill is fully implemented. The Department of Revenue has also estimated a loss of over $1 billion in general revenue by 2030. These numbers highlight the substantial impact that the bill may have on the state’s finances.

During the March 12 hearing, Davidson expressed his belief that implementing this measure would not necessitate service cuts. On the contrary, he asserted that it would actually lead to an increase in revenue.

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During the hearing, Brian Colby, the vice president of public policy for the Missouri Budget Project, expressed his opposition to the bill.

Colby expressed in written testimony that the bill would result in a lack of sufficient resources for the state and attempt to substitute income tax with sales tax hikes.

If a constitutional amendment is placed on the ballot, there is a possibility of reducing the new tax rate of 4% by one-quarter of a percent. This reduction would occur if the net general revenue collected in the previous fiscal year results in a surplus of $20 million.

The special committee is set to listen to testimony regarding House Joint Resolution 187, a proposal for a constitutional amendment that aims to create the “Tax Reform Fund.” Under this amendment, if the net general revenue collected exceeds the projected expenses by $20 million or more, any surplus amount above $20 million will be allocated to the “Tax Reform Fund,” with a cap set at $500 million. Once the fund reaches and maintains a balance of $250 million and a surplus of $20 million is achieved in the subsequent year, the legislature will be required to reduce personal income taxes by one-quarter of 1%.

According to the summary of the joint resolution, there will be no limit on the number of triggered reductions, and these triggers will remain in effect until the personal income tax is reduced to zero.

According to the fiscal note attached to the resolution, the proposed fund will be utilized to gradually decrease personal property tax once the individual income tax is eliminated.

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The current state individual income tax rate of 4.8% is set to decrease gradually by one-tenth of a percent increments, provided that specific revenue levels are achieved. This reduction will continue until the tax rate reaches 4.5%.

During the hearing, the committee will also listen to testimony regarding House Joint Resolution 188, which presents a comparable constitutional amendment concerning the establishment of a “Tax Reform Fund.”

According to the legislation summary, once personal income taxes and personal property taxes have been reduced to zero, they will remain at zero. Additionally, the fund will continue to collect revenue even after the elimination of these taxes, but the collected amount will only be used to supplement budget shortfalls in fiscal years where the General Assembly enacts a tax reduction.

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