Missouri will exempt Social Security, public pension payments from state income taxes

Gov. Mike Parson on Thursday signed the tax cut he said a week earlier was responsible for his decision to veto most of the 201 spending items he cut from the state budget.

The bill, exempting Social Security benefits and public pension payments from income tax, would reduce state general revenue by an estimated $309 million annually. It would also allow counties to hold a vote on whether people 62 or older should be exempt from increases in their annual property tax bills.

The bill passed with broad bipartisan support — only two House members voted against it — but not without some misgivings among Democrats, said Rep. Peter Merideth, D-St. Louis.

Under current law, exemptions allowed for retirement income are phased out for single taxpayers earning more than $85,000 and married couples with incomes above $100,000.

“I was not thrilled with it,” Merideth said. “But honestly, to me, it was the best of the options presented.”

The Republican House leadership was pushing for a $1 billion cut in corporate and income taxes. The bill’s property tax language began as a cap on increases in assessments for all property owners.

“Many of us agree that there is a real problem with seniors right now that are on fixed incomes dealing with inflation and property taxes are a big part of that,” Merideth said.

Homeowners around the state, especially in metropolitan areas, are seeing massive increases in their assessments due to the recent rise in real estate prices. And while provisions in the Missouri Constitution require rates to be rolled back when overall assessment increases exceed inflation, individual property owners could still see big increases if their property assessment went up more than the general average.

Parson’s decision to cite the tax cut for retirement benefits as a reason to veto spending items is not playing well with lawmakers. Budget leaders from both chambers said they will consider overrides, and said fiscal policies pushed by the governor, more than the retirement exemption, are doing more to reduce state revenues.

“Maybe the governor’s concerned about what possible, further tax reductions that the legislature may be looking at, but that’s not necessarily how, in my opinion, you build this budget,” said Senate Appropriations Committee Chairman Lincoln Hough, R-Springfield.

Missouri took in $13.2 billion in general revenue in the year that ended June 30. The state was also holding surplus funds of nearly $8 billion. Parson vetoed $555 million in spending, including $365 million in general revenue appropriations, from the $16 billion in general revenue items in the budget.

Growth in state revenue slowed, however, to 2.7% during fiscal 2023 and is expected to be just 0.7% in the current fiscal year. It is a large income tax cut passed last year, not the retirement exemptions, responsible for slowing growth, Merideth said.

“It’s one thing to blame this tax cut,” Merideth said, “but really, the real tax cut that’s gonna be costing us money is the other one.”

State Sen. Tony Luetkemeyer, R-Parkville and sponsor of the bill, could not be reached Friday morning for comment.