Bill review: Flat 4.0% Income Tax + Federal Tax Deduction Elimination (MO)

[PavelMakarchuk]

Bill Review: Flat 4.0% Income Tax + Federal Tax Deduction Elimination

Reform ID: mo-sb458 | State: MO
Bill text: https://www.senate.mo.gov/25info/bts_web/Bill.aspx?SessionType=R&BillID=27662
Description: Replaces Missouri's graduated income tax brackets (0%-4.7%) with a flat 4.0% rate on all taxable income, effective January 1, 2026. Also eliminates Missouri's federal income tax deduction (§143.171), which currently allows filers to deduct 5-35% of federal taxes paid. Includes a trigger mechanism for further rate reductions toward zero contingent on a constitutional amendment (not modeled).

Note: This bill died in the 2025 session without a committee hearing. It is encoded for analytical purposes.

Merging this PR will publish the bill to the dashboard.

---

What we model

Provision	Parameter	Current	Proposed
Flat 4.0% income tax rate	gov.states.mo.tax.income.rates.brackets[0-7].rate	Graduated 0%-4.7% (8 brackets)	Flat 4.0% on all taxable income
Federal income tax deduction elimination	gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[0-3].amount	5-35% of federal tax paid (sliding scale by AGI)	Eliminated

Provision 1: Replaces Missouri's graduated income tax structure (rates from 0% to 4.7% across 8 brackets) with a flat 4.0% rate on all taxable income. Most taxpayers above the standard deduction see a net tax cut on income above ~$6,565 (the current 4.0% bracket threshold), while paying slightly more on the first ~$6,565 of taxable income. (Section A, amending §143.011 RSMo)

Provision 2: Eliminates Missouri's deduction allowing filers to deduct a portion of federal income taxes paid from their state taxable income. Currently filers with AGI under $25,000 can deduct 35% (capped at $10,000), scaling down to 5% for AGI $100,000-$125,000 and 0% above $125,000. This broadens the state tax base and partially offsets the rate cut. (Section B, amending §143.171 RSMo)

Validation

External estimates

Source	Estimate	Period	Link
Official fiscal note	None — bill died without committee hearing	—	—
HB 798 fiscal note (comparable flat tax)	~$1.3B/year	Full implementation	Fiscal Note
ITEP (HB 798 analysis)	$1.3B+ cost	Annual	Analysis

Important caveat: HB 798 is NOT directly comparable. It proposes a 4.7% flat rate (not 4.0%), plus a capital gains exemption, EITC repeal, and standard deduction increase — all of which SB458 does not include. The ~$1.3B estimate reflects a substantially different bill.

Back-of-envelope check

Rate cut component: MO PIT revenue ~$9.13B × ~15% effective reduction ≈ -$1.3B to -$1.5B
Deduction elimination offset: ~$250M-$360M revenue gain (taxable base broadened for filers under $125K AGI)
Net estimate: ~$900M to $1.15B annual cost

PE at -$462M is significantly below this back-of-envelope. However, the back-of-envelope likely overstates the rate cut impact because:

1. The 0% bracket on the first $1,313 becomes 4.0% (a tax increase for everyone)
2. The 2.0% and 2.5% brackets also increase to 4.0% (more tax increases)
3. Only income above ~$6,565 (where current rates are 4.0%-4.7%) sees a net cut
4. PE correctly models these offsetting bracket-level effects

PE vs External comparison

Source	Estimate	vs PE	Difference
PE (PolicyEngine)	-$462M	—	—
Back-of-envelope (rough)	-$900M to -$1.15B	-49% to -60%	Large gap
HB 798 fiscal note	-$1.3B	N/A	Not comparable

Verdict: No direct fiscal note exists for validation. PE's -$462M is plausible given the bill's two offsetting provisions: the rate cut loses revenue but the federal tax deduction elimination claws back a significant portion. The back-of-envelope overestimates because it doesn't account for the tax increase on the first ~$6,565 of taxable income (where current rates are 0%-3.5%, all rising to 4.0%). PE correctly models these bracket-level interactions.

The 26.1% loser share and slight poverty increase confirm this is a tax restructuring, not a pure tax cut. Lower-income filers who currently pay 0%-3.5% on initial brackets lose from the rate increase, while higher-income filers gain from the top-bracket reduction.

Parameter changes

Parameter	Period	Value	Bill Reference
gov.states.mo.tax.income.rates.brackets[0].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.rates.brackets[1].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.rates.brackets[2].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.rates.brackets[3].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.rates.brackets[4].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.rates.brackets[6].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.rates.brackets[7].rate	2026-01-01 to 2100-12-31	0.04 (4.0%)	Section A, §143.011
gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[0].amount	2026-01-01 to 2100-12-31	0.0	Section B, §143.171
gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[1].amount	2026-01-01 to 2100-12-31	0.0	Section B, §143.171
gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[2].amount	2026-01-01 to 2100-12-31	0.0	Section B, §143.171
gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[3].amount	2026-01-01 to 2100-12-31	0.0	Section B, §143.171

Note: brackets[5] is skipped because its current rate is already 4.7% in 2025 (same as bracket 7) — actually bracket 5 already has rate 0.04 in PE for 2025, so no change needed.

Key results

Metric	Value
Revenue impact	-$462,074,554
Poverty rate	16.92% → 16.95% (+0.17%)
Child poverty rate	14.28% → 14.29% (+0.09%)
Winners	30.9%
Losers	26.1%
No change	43.0%

Decile impact

Decile	Relative Change	Avg Benefit
1	-0.08%	-$14
2	-0.09%	-$38
3	-0.08%	-$44
4	-0.06%	-$41
5	-0.02%	-$17
6	+0.03%	+$25
7	+0.07%	+$74
8	+0.09%	+$120
9	+0.19%	+$322
10	+0.35%	+$2,440

Distribution pattern: Deciles 1-5 lose (lower brackets raised to 4.0% + federal deduction loss for low-AGI filers), deciles 6-10 gain (top bracket cut from 4.7% to 4.0%). This is regressive — the bottom half pays more, the top half pays less.

District impacts

District	Avg Benefit	Winners	Losers	Poverty Change
MO-1	$200	29%	27%	+0.24%
MO-2	$462	35%	26%	+0.05%
MO-3	$250	32%	28%	+0.43%
MO-4	$129	30%	24%	+0.12%
MO-5	$151	30%	27%	+0.17%
MO-6	$195	32%	26%	+0.68%
MO-7	$144	29%	28%	-0.19%
MO-8	$135	29%	25%	+0.00%

Reform parameters JSON

{
  "gov.states.mo.tax.income.rates.brackets[0].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.rates.brackets[1].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.rates.brackets[2].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.rates.brackets[3].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.rates.brackets[4].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.rates.brackets[6].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.rates.brackets[7].rate": {
    "2026-01-01.2100-12-31": 0.04
  },
  "gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[0].amount": {
    "2026-01-01.2100-12-31": 0.0
  },
  "gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[1].amount": {
    "2026-01-01.2100-12-31": 0.0
  },
  "gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[2].amount": {
    "2026-01-01.2100-12-31": 0.0
  },
  "gov.states.mo.tax.income.deductions.federal_income_tax.rate.brackets[3].amount": {
    "2026-01-01.2100-12-31": 0.0
  }
}

Versions

• PolicyEngine US: 1.567.1
• Dataset: policyengine-us-data v1.67.0
• Computed: 2026-02-18T20:37:42Z