Perhaps the biggest surprise of Missouri Gov. Mike Kehoe’s State of the State address on Tuesday wasn’t that he wants to eliminate the income tax but that he’s putting the plan up for a vote.
The GOP chief executive and Republican-controlled legislature could potentially ratchet the tax down to zero on their own. As he explained during an interview with St. Louis Public Radio, lawmakers passed a bill recently that decreases the state income tax rate, but it’s phased in so gradually that it would take “decades to get to the plan there.”
“The plan we're proposing happens on a much quicker time frame,” Kehoe said.
Kehoe’s proposal would phase out the state income tax over a five-year period. It would have exceptions to prevent a phase out in the case of a revenue downturn. And it would also authorize an expansion of the state sales tax on services, such as monthly subscriptions or digital services like Audible.
Broadening the sales tax base would require a public vote since Missourians banned sales taxes on services in 2016. Asked why he thought the state’s voters would reverse a decision they made about a decade ago, Kehoe replied, “because this will put more money in their pocket.”
“The general revenue that we collect from Missouri income taxes is nearly $9 billion, and if you put $9 billion back into Missourians pockets, I believe they'll spend the money, and it'll have a more positive effect than if government was spending that money,” Kehoe said.
Some Democrats pointed out that the proposal could be appealing to voters because it won’t become clear which specific sales taxes will go up until after it’s passed later this year.
“The governor mentioned a few things, like closing loopholes. You do not generate $9 billion of economic activity off of closing the loopholes mentioned today,” said state Rep. Betsy Fogle, D-Springfield, who's the ranking member of the House Budget Committee. “Which to me signals that this will be an increase in taxation of services, which will raise the cost of living for most Missourians.”
Kehoe said the proposal is about “moving away from the checkbook economy more to the economy that we're used to right now.”
He also said he won’t support expanding the state sales tax to things like agriculture, health care or real estate, which he contends will make the plan less disruptive for Missourians.
“We're not doing double digit sales tax increases. That would be insane,” Kehoe said. “Our plan will call for only the amount of money required to offset the income tax so that future legislators can't be in a runaway position to overtax Missourians.”
A sobering budgetary picture
The other major highlight of Kehoe’s State of the State speech was the introduction of a budget plan that spends less than in previous years.
During a briefing with reporters, state Budget Director Dan Haug said the state’s surplus, which sits at around $2 billion, will be basically gone by July 2027. That reality, Kehoe said, necessitates about a $600 million reduction in general revenue spending, including around $270 million for the Department of Social Services.
“Taking these incremental steps like we're doing this year and likely have to do next year, I think, helps us get to that balanced budget,” Kehoe said.
Department of Social Services Director Jessica Bax recently told St. Louis Public Radio that the state only has a couple of years' worth of federal funds to pay the state’s portion of Medicaid expansion. And for the first time, the state will also have to pay a percentage of the Supplemental Nutrition Assistance Program, which could end up being tens of millions of dollars.
Asked if the elimination of the income tax will exacerbate the state’s future budget problems, Kehoe said the question comes down to “whether you think putting that money back in Missourians’ hands will ultimately be better for our state's economy.”
“Does it keep more families here? Does it encourage young people to move here?” Kehoe said. “We believe that it will grow our state's population. And when you grow our state's population, good things start happening.”
Kehoe also defended his proposal to keep allocating state funds for Education Savings Accounts, which help fund scholarship programs that parents could use to send their children to private schools. Democrats, and some Republicans, have panned the program for taking money away from public schools and as a wasteful expenditure given the state’s budget woes.
“We believe that choice is a good thing for Missourians to have,” Kehoe said.
Continued state commitment for tornado relief
Kehoe said the state will likely have a continual role in helping St. Louis recover from last year’s devastating tornado.
His budget would provide about $86 million for debris removal, which is in addition to the $100 million lawmakers approved last year during a special session. Kehoe said a good percentage of that funding will come from a federal match, meaning the state won’t be completely on the hook to pay for the recovery effort.
“St. Louis is going to have to get rebuilt. We saw this in Joplin, unfortunately, in 2011. And, so, our state's been through it before,” Kehoe said. “And I believe Missourians will support helping others in that time of natural disaster.”
Both Republicans and Democrats have described the Federal Emergency Management Agency’s response to the May 16 tornado as inadequate. St. Louis Chief Recovery Officer Julian Nicks has said that FEMA did not go door-to-door to seek out residents who needed aid and the agency left St. Louis sooner than anticipated.
“There's a number of gaps that I would have loved to see our federal government play a much bigger proactive role in to support residents in this recovery,” Nicks said.
Kehoe said that because the tornado caused such extensive damage to residential property, the recovery process won’t be instantaneous.
“Everybody and their brother is trying to get this thing to move as fast as they can,” Kehoe said. “And because I'm from that area, it's very personal to me. And we're going to do the best we can to focus on it.”
“St. Louis on the Air” brings you the stories of St. Louis and the people who live, work and create in our region. The show is produced by Miya Norfleet, Emily Woodbury, Danny Wicentowski, Elaine Cha and Alex Heuer. The audio engineer is Aaron Doerr.
