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State and Local Government / Budget and Spending

Not All Ideas Are Bad Ideas

By Michael Rathbone on Feb 20, 2012

It seems that the Show-Me Institute can be pretty hard on the state government sometimes. For that, we make no apologies (it is in fact one of our Prime Directives). However, while we may be tough, we also strive to be fair. That is why I must commend the effort currently underway in the Missouri Legislature to reform our tax structure. Senate Bill 472, sponsored by Missouri Sen. Will Kraus (R-Dist. 8), would modify various tax credit programs and require the Missouri Department of Revenue to apply any increase in revenue generated from these modifications to a decrease in the corporate income tax rate.

Some (but by no means all — Historic Preservation and Low-Income Housing are capped, but not eliminated) of the various tax credits that will be repealed include the rolling stock tax credit, the charcoal producers tax credit, and my favorite (not really), the wine and grape production tax credit. The money saved if the state abolished these tax credits would go toward offsetting revenue lost if the corporate income tax is reduced. In fact, the fiscal note for this bill states that there will probably be little to no net impact on general and total state revenue. However, I would caution that estimating the fiscal impact when it comes to tax credits is difficult, because it is difficult to determine when or if tax credits will be redeemed.

I have made the case before about why corporate income taxes should be cut (or eliminated), but I want to summarize the benefits of a lower corporate income tax. Lower corporate income taxes are fair because they apply to all corporations and not favored industries. Lower corporate income taxes also allow a company to reinvest more of its money into the company, and they can make a company more competitive compared to companies in other states, without having to resort to corporate handouts like tax credits. Combined with the elimination of some tax credits, which have a record of not being successful in generating economic development, SB 472 has potential to do some good for a state that ranks 49th in job creation.

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Michael Rathbone

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