States tapping historic surpluses for tax cuts and rebates

JEFFERSON CITY, Mo. (AP) — Stoked by the largest surplus in state history, Missouri's Republican-led Legislature devised a $500 million plan to send one-time tax refunds to millions of households. In a shock to some, GOP Gov. Mike Parson vetoed it.

Parson's objection: He wanted a bigger, longer-lasting tax cut.

“Now is the time for the largest income tax cut in our state’s history,” Parson declared as he called lawmakers back for a September special session to consider a $700 million permanent tax reduction.

Upon its likely approval, Missouri will join at least 31 states that already have enacted some type of tax cut or rebate this year — an astounding outpouring of billions of tax dollars back to the people. Idaho lawmakers are convening Thursday to consider more tax breaks, and Montana lawmakers also are weighing a special session for tax relief.

Flush with federal pandemic aid and their own surging tax revenue, states have cut income tax rates for individuals and businesses, expanded tax deductions for families and retirees, pared back property taxes, waived sales taxes on groceries and suspended motor fuel taxes to offset inflationary price spikes. Many also have provided immediate tax rebates.

Republicans and Democrats alike have joined the tax-cutting trend during a midterm election year.

Yet divisions have emerged about how far to go. While Democrats generally have favored targeted tax breaks and one-time rebates, some Republicans have pressed for permanent income tax rate reductions that could lower tax bills — and state revenue — for years to come. Parson describes it as “real, lasting relief.”

Some budget analysts warn that permanent tax cuts could strain states during a future recession. The U.S. economy has shrunk for two straight quarters this year,...