Kehoe wants voters to decide if state income tax should be eliminated

Before a joint session of the General Assembly, Mike Kehoe yesterday said voters should get to decide this year at the ballot box if the state phases out its income tax.

While details were scarce on how the tax elimination would occur, Kehoe presented the goal during his annual State of the State address in Jefferson City, in comments similar to ones he made in November 2025 as reported by the St. Louis Post-Dispatch. He called on members of the legislature to pass a joint resolution this session to place the issue before voters. It’s a plan he said pairs tax relief with closing loopholes.

“The question before Missourians will be clear,” Kehoe said. “Should Missouri begin a phased elimination of the individual income tax, with a full repeal within the next five years?”

Noting Missouri’s population is stagnant, and economic growth has been “average at best,” Kehoe said the issue is competitiveness, adding that starts with the tax code. He pointed out the state brings strengths to the table when recruiting jobs and investment but struggles to compete with states such as Tennessee and Texas, which don’t have an income tax.

“If we are serious about building a foundation for growth, to compete rather than be complacent, then we must begin the work now to phase out and eliminate Missouri’s individual income tax,” he said, noting voter approval would allow legislators in next year’s General Assembly to put the plan in action. “We can do both. We can maintain a balanced budget that supports essential services and pursue a bold tax policy that improves Missouri’s competitiveness.”

Income tax represents 65% of last year’s $13.4 billion in state revenue, according to state officials. Kehoe asserted in his speech Missouri can maintain a balanced budget that supports essential services and eliminate the income tax by allowing taxes on certain services. Kehoe noted in his speech that sales taxes are not placed on monthly subscriptions and digital services such as online advertising, e-books and artificial intelligence platforms, which could create new revenue. He did not provide estimates on this revenue.

“When these types of modern services are taxed, it will create new revenue for local governments,” he said, adding any expanded sales taxes will not include agriculture, health care or real estate. “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.”

The current top rate of tax imposed on individuals for the 2025 tax year is 4.7%. The earliest date for the next rate cut triggered by revenue would be the start of 2028, according to state budget office estimates. Kehoe this past summer signed House Bill 594, which makes Missouri the first in the nation to enact a tax cut that exempts capital gains from income taxes, according to past Springfield Business Journal reporting.  

The bill’s updated fiscal note estimates the change could reduce state revenue in the first year by $157 million. In future years, the bill is estimated to decrease state revenue by roughly $111 million. However, the fiscal note indicates the impact could be significantly larger.

Based on the $13.3 billion in capital gains income Missouri taxpayers claimed for 2022 on their federal income tax forms, taking the 4.7% top rate would yield $625.6 million for fiscal 2026, according to the fiscal note.

Budget recommendations

The income tax issue served as the centerpiece for Kehoe’s speech, which also covered public safety, economic development and education priorities. His roughly $54.5 billion recommended operating budget proposes to reduce more than $600 million from the core operating budget, which he said begins to address a projected future imbalance of over $2 billion. Kehoe said the reductions prioritize fiscal discipline while continuing to meet mandatory and high-priority obligations, including Medicaid matching requirements, child care subsidies and disaster relief, without cutting core funding for higher education or the K-12 foundation formula. The foundation formula will see no increase after receiving a $500 million increase last year to $4.2 billion. 

“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,” he said.

In his speech, Kehoe said since fiscal 2022, more than 3,400 new budget lines at a cost of $13 billion had been added to the state’s operating budget. He said it “demonstrates the historic imbalance we must fix.”

“Simply put, the days of excusing budgetary decisions with fund balances and so-called surpluses are over,” Kehoe said. “State government has to return to how budgets looked before COVID-19.”

In Kehoe’s fiscal 2027 proposed budget, $2.3 billion is allocated to public safety, including $1.3 billion for statewide disaster response. He also recommends $26.7 million for maintenance and repairs at veterans homes as part of $170.6 million in total spending for veterans services.

For economic development, Kehoe’s budget priorities include $17.7 million for Missouri One Start, a workforce training program that looks to upskill workers on emerging technologies, and $63.2 million related to the FIFA World Cup, for which Kansas City will host matches this summer. The investment for the soccer tournament will include comprehensive safety measures and personnel, he said.

A full transcript of the State of the State address is available here.