What Will The Neighbors Think?
Despite the recent adjournment of the Missouri Legislature’s special session (which cost Missouri taxpayers more than $280,000), it wasn’t a complete waste. During the debate about Aerotropolis, the Missouri House passed a corporate income tax cut that lowers the rate from 6.25 percent to 5.5 percent. Unfortunately, the tax cut didn’t become law, but I commend the House for at least trying.
Why is cutting corporate taxes important?
First, everything else being equal, cutting corporate taxes will leave more money available for business owners to reinvest in their companies. A company seeking to expand will have an easier time using its own profits instead of issuing debt or equity to raise capital.
Second, it’s fair. As we have seen in Missouri, when legislators want to incentivize investment in the state, often they create targeted tax credit programs (like Aerotropolis). This allows the state to place a bet with taxpayers’ money on favored industries. Also, evidence shows that tax credits aren’t very effective. A corporate tax cut applies to every corporation in the state and thus companies can succeed on their own merits and not on how well-connected they happen to be.
Third, corporate tax cuts make a company more competitive. If Company A and B are in two different states and they make the same product at the same cost, but Company A has a higher tax rate than Company B, then Company B will have a competitive advantage. However, Company B would have a competitive advantage not of its own making; instead, the company would have an “artificial” edge due solely to its location. Company B can use that tax advantage to cut its prices and thus gain more customers than Company A.
Having a competitive advantage is important, especially in today’s economy. This applies to individual companies as well as states. If a state wants more job growth, then it needs a competitive tax environment. According to the U.S. Department of Labor (hat tip to Tax Foundation), most mass job relocations occur from one U.S. state to another and not to overseas locations. People in Kirksville, Mo., have more to fear about their jobs moving to Des Moines, Iowa, than to Delhi.
According to data obtained from the Tax Foundation, Missouri has the sixth-highest corporate tax rate compared to its neighbors (the states sharing a border with Missouri). However, if Missouri cut its corporate tax rate to 5.5 percent, it would have THE lowest corporate tax rate compared to its neighbors. In a time when every job is precious, and with the way things are in Washington, D.C., shouldn’t the state do everything it can to make doing business here more attractive?