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State and Local Government / Budget and Spending

A Smaller And Smaller Piece Of The (Tax) Pie

By Michael Rathbone on Jun 12, 2012

The state coffers are filling up faster than anticipated. At an education forum on June 7, Linda Luebbering, the state budget director, said that state officials expect revenue growth to continue, but revenue will not reach the point where it was before the recession. At that time, net general revenues topped $8 billion.

“We really need above-typical growth to get where we used to be,” Luebbering said.

Unfortunately, Missouri’s growth is far below what is typical. Last week, my colleague, Show-Me Institute Policy Analyst Patrick Ishmael, blogged about how Missouri is lagging behind other states in terms of economic growth. According to the U.S. Commerce Department, Missouri ranked 43rd in economic growth last year. In fact, Missouri grew by just .04 percent. Forget about getting above-typical growth; that is barely any growth.

Missouri can do better. For instance, Missouri can eliminate its corporate income tax to make the state more attractive for business. As taxes go, taxes on corporate income are among the most economically harmful. The corporate income tax only makes up 4 percent of general revenues, yet its removal would have a positive impact on the economy. Eliminating economic development tax credits, which should be done anyway, can offset all of that lost tax money for the state. This change would, in the short term,  be revenue-neutral at worst, but its long-term benefits for our state would be tremendous.

If Missouri wants to get going again, it cannot keep doing what it has been doing. Eliminating the corporate income tax would be a positive step toward increased economic growth and as a side effect, revenues will grow as well.

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Michael Rathbone

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