by Brendan Cullerton
How the federal government handles the upcoming “fiscal cliff” scenario could have major implications for Missouri revenue.
Without action by the federal government, the tax cuts of former President George W. Bush will expire on Jan. 1, 2013. This expiration would raise the federal income tax rate if Congress cannot come to an agreement before the new year.
Missouri allows a six percent tax deduction on state income taxes for any federal taxes paid, with a limit of $5,000. If people have to pay more in federal taxes because of higher tax rates, then the state tax deduction could be higher, costing Missouri revenue.
Legislators agreed that if the state revenue fell, education funding would take the biggest hit.
“It could be a significant number,” said Sen. Rob Schaaf, R-St. Joseph. “I mean six percent of a large number can be a very large number.”
Rep. Chris Kelly, D-Columbia, said Missouri is one of few states that allow such a deduction, and that puts the state at a disadvantage.
State budget director Linda Luebbering said other factors, like an increase in state gross domestic income, could offset any revenue loss caused by a rise in federal income tax.