“Should Five Per Cent Appear Too Small, Be Thankful I Don’t Take It All”
Last week, I wrote about how Missouri residents enjoy relatively low taxes on alcoholic beverages, cigarettes, and gasoline. Friday, on Prime Buzz, Steve Kraske enumerated reasons why these taxes are so low in Missouri, and why the state is unlikely to raise them in the future. Additionally, he explains that Missouri’s low taxes act as an incentive for its border states to keep their taxes low as well:
That Missouri is so reluctant to raise taxes puts added anti-tax pressure on Kansas. Convenience stores in Wyandotte and Johnson counties fear losing even more business to Missouri stores if Kansas boosts the tax again.
When you tax something, you get less of it, after all. When a state increases the tax rate on goods like alcoholic beverages, cigarettes, and gasoline, individuals will consume less of them. After a certain point, the total tax revenue generated from these products is reduced, as well.
By keeping its tax rate low relative to its neighboring states, Missouri can maximize the amount of revenue that it generates. This would help ensure that not only Missouri residents shop in-state, but that individuals located near the border in neighboring states will also shop here.
Tax increases are not cost-free for states. In addition to the cost of reduced sales tax revenue, they have a cost in terms of lost competitiveness. Fewer people and businesses will locate to high-tax states because the costs of living and doing business are higher.