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Economy / Taxes

Benefits of Eliminating the Income Tax

By Abhi Sivasailam on Aug 3, 2009

The Sunday edition of the Columbia Daily Tribune featured an op-ed written by Dr. Joseph Haslag, Michael Owens, and Caitlin Hartsell of the Show-Me Institute.

The authors are concerned with public policy choices that can accelerate the growth rate of Missouri’s economy; they suggest that eliminating the income tax could be a positive first step.

Taking a broad view of tax structures in various states, the authors find that states with no personal income taxes traditionally grow faster than states that do levy taxes on income. The income tax–free Texas economy, for example, grew twice as fast as Missouri’s between 1995 and 2005:

Our calculations indicate Missouri’s real GDP would increase at a 2 percent annual rate if the state income tax were eliminated, as opposed to Missouri’s historic 1.3 percent growth. While a 0.7 percent increase in the growth rate might not sound like much, its impact would be significant for the next generation of Missourians. Indeed, Missouri’s real GDP gains would total $438.6 billion over this 25-year period, a substantial amount that would translate into more jobs and a higher standard of living.

The authors stress that though replacing revenue from an income tax would be a challenge, it is a worthwhile challenge for Missourians — the gains from reform in the tax system are too promising to be cast aside.

When Missourians evaluate the state’s tax climate, they should consider how Missouri stacks up to peer states. The Tax Foundation reports that Missouri’s 6% income tax is the 21st highest in the nation. This is one list that Missouri should not wish to climb.

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Abhi Sivasailam

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