Missouri Gov. Mike Kehoe used his State of the State speech on Tuesday to call for a phase out of the state income tax — a move he said voters would have to approve.
The GOP governor's budget, which spends less money than in the recent past, also includes more funds to remove debris from last year's tornado in St. Louis, which is an outlay that budget leaders could continue over the next few years.
Kehoe's income tax plan was the centerpiece of his speech to a joint session of the General Assembly. The proposal would phase out the tax over a five year period and make up for the lost revenue by allowing taxes on certain services.
Kehoe noted in his speech that sales taxes are not placed on monthly subscriptions and digital services like online advertising, e-books and AI platforms. A statewide vote is necessary since Missourians banned sales taxes on services in 2016.
"When these types of modern services are taxed, it will create new revenue for local governments," Kehoe said. "These increases will need to be offset by reducing local taxes, like property taxes, a high priority for Missourians and many of us in this room."
Kehoe also said the plan "includes safeguards to ensure fiscal responsibility and protect against economic downturns, by requiring triggered reductions to the income tax rate."
"Eliminating the income tax is not about runaway sales taxes," Kehoe said. "And I will never support extending sales taxes on agriculture, healthcare, or real estate. Period. This is the people's money, and they can spend it better than politicians. This plan is about aligning our tax code with today's economy and not yesterday's. Missouri's tax code was built for the past 100 years. Our economy demands one for the next 100 years."
Democrats such as Sen. Tracy McCreery, D-St. Louis County, have questioned whether eliminating the state income tax is possible without wrecking future budgets or pushing sales taxes up to recoup the lost revenue.
"We need all of our leaders to be focused on affordability," McCreery said before the governor's address. "That's where my attention is, and I hope the entire Senate joins me in working on ways to lower costs for Missouri families, businesses and communities. With that in mind when I hear the Governor's State of the State address, and when we review his budget in the coming weeks, here is what I do not want to see. I don't want to see any new taxes, any expansion of taxes, any increase in taxes, and any hidden tax disguised as fees."
Kehoe said "as someone who raises horses and cattle, believe me, if you keep putting hay and grain in front of them, they'll eat. So will government."
"The folks who say that just want to spend more of your money," Kehoe said. "I will never apologize for putting money back in the pockets of hardworking Missourians."
A smaller budget
Kehoe is proposing about a 4% cut in general revenue spending, marking an end to a string of budgets during the COVID-19 pandemic that substantially boosted the state budget with federal dollars.
"The days of excusing budgetary decisions with fund balances and so called 'surpluses' are over," Kehoe said.
He pointed to a report from state Auditor Scott Fitzpatrick showing that Missouri's large budgetary surplus that grew after the pandemic is rapidly depreciating.
"Our recommendation proves that state government can live within its means, and our economy can grow and deliver results for taxpayers all at the same time," Kehoe said. "It cuts more than $600 million from the core, starting to correct a future spending imbalance of potentially over $2 billion."
Still, the budget does continue a pay plan that gives a 1% increase for state employees per two years of service. And state budget director Dan Haug said the budget also includes a total of $186 million that can be used for debris removal from last year's tornado in St. Louis.
That figure includes $100 million that lawmakers approved in a 2025 special session for tornado relief – as well as an additional $86 million. Haug said the federal government is slated to pick up about 75% of the cost.
Kehoe's budget also seeks to expand state funding of a program that can help pay for private K-12 tuition from $50 million to $60 million. State Treasurer Vivek Malek had asked for $100 million in this year's budget.
"Students across our state have brighter futures because their families were given educational choice," Kehoe said. "They remind us that when we put students first, opportunity follows."
In addition, Kehoe backed an open enrollment plan that would allow students to go to a different public school district than where they reside. Similar plans faltered in the past couple of legislative sessions due to bipartisan opposition.
"It's about fairness. It's about access." Kehoe said. "And it's about making sure no child's future is limited by their address."
Kehoe acknowledges bruising 2025 session
Near the end of his speech, Kehoe alluded to how Republicans forcibly ended Democratic filibusters on abortion restrictions, congressional redistricting and a measure that makes it harder to approve constitutional amendments.
"Over the last year, we came together for one regular session, two special sessions and everything in between," Kehoe said. "And throughout it all, there have been times when tensions ran high, and we found it easier to see each other's differences before our similarities."
Senate Democrats in particular have said they may retaliate by throwing up procedural roadblocks to make advancing legislation much more difficult. That could imperil much of Kehoe's non-budgetary agenda, such as the income tax elimination plan.
Kehoe said "let us remember that beyond party labels, beyond floor speeches, and beyond the noise, we are here for a higher purpose."
"It is our job to serve – not as Republicans or Democrats, not as urban or rural – but as Missourians, putting our values first, working together when it matters most," he said.
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