As the U.S. Congress turns the national conversation toward reforming the tax code, one aspect they are discussing is the corporate income tax. Missourians would also do well to have a discussion regarding our own corporate income tax and how it affects—or in this case hinders—our state’s economic growth.
You might assume that as a red state, Missouri’s corporate income taxes would be low. Since 1993, the top corporate income tax rate for Missouri has been 6.25 percent, currently the fifteenth-lowest in the country. However, a new essay by R.W. Hafer and Howard J. Wall argues that categorizing Missouri as a low-business-tax state isn’t quite that simple.
Drawing on data from the Tax Foundation, Hafer and Wall examine the total tax burden facing businesses, including income, property, sales, and unemployment taxes. They find that the tax burden on a business depends heavily on the type of industry the company is in. Because of different incentives and tax breaks offered to businesses in different industries, the effective tax rates paid by some firms are much higher than what others pay. For example, manufacturers enjoy a relatively hospitable tax environment; retail establishments and distribution centers, not so much.
This uneven distribution of tax burdens might not be harmful if the firms that were taxed the least were those that have the most beneficial effects on the economy. Unfortunately, the opposite seems to be the case. It turns out that the industry Missouri favors (manufacturing) seems to be the one in which low taxes are not related to higher state growth.
It seems (again) as if policymakers are trying to pick winners and losers—and finding out how hard it is to make the right call.
The essay, available at the link below, also explores the different tax burdens faced by companies in the same industry depending on whether they are new or established firms. Hafer and Wall’s findings help explain why our allegedly low-business-tax state has experienced such anemic growth in recent years.