Show Me a Tax Cut

Gov. Jay Nixon’s State of the State Address on Jan. 20 identified three main objectives for the coming year:

We must keep the jobs we have, and create thousands more.

We must build a granite foundation for Missouri’s future growth.

And we must balance the budget without raising taxes.

These are goals that Missourians can agree on, regardless of partisanship. The first goal is of particular interest to people in a state where the unemployment rate stands at 9.2 percent. No wonder it was first on the list.

In his speech, Nixon said he wants Missouri to be first in job creation. But, as of now, the state is 16th in a Tax Foundation ranking of the best environments for business. The state corporate income tax stands at 6.25 percent, the 16th-lowest in the nation. Although these numbers are good, they could be better. As the governor said, he wants to be number one.

Nixon points to the elimination of the franchise tax for 16,000 small businesses as contributing to job creation and business expansion. He is thereby acknowledging that reducing the tax burden on businesses has a positive impact on job creation. So, why not cut the corporate income tax rate? This would allow Missouri companies to reinvest more money into their businesses and generate more jobs. It would also make Missouri an even more attractive environment for other businesses to move into.

Opponents of such tax cuts often argue that they would result in a decrease in the revenue needed to support important state programs that assist needy families. However, the revenue generated from the state corporate income tax is a small fraction of all state revenue. More importantly, many of these programs are bloated and don’t serve their intended purposes effectively. A cut in the corporate tax rate, on the other hand, would help provide necessary jobs for people who are in need of a source of revenue to support their families. It would do this both by allowing current Missouri companies to expand hiring, and by drawing other companies to the state. Those already employed would also benefit, because workers bear slightly more than 70 percent of the burden of corporate taxes in the form of reduced wages, according to the Congressional Budget Office. A cut in the corporate tax rate also increases the value of companies, which would benefit anyone with a 401(k). Opponents of tax cuts for corporations argue that these tax cuts only benefit the companies themselves. But the burden of corporate taxes ultimately falls on people, whether it’s the customers, the workers, or the shareholders.

I commend Gov. Nixon for resisting the impulse to raise taxes, but even more impressive would be an effort to cut them.