Enough: Earned Income Tax Credit’s Failure Wasn’t Because “Corporate Interests” Were Prioritized

Posted on by Patrick Ishmael

In the last few days, several Missouri editorial boards have published pieces bemoaning the income tax cuts passed by the Missouri legislature, particularly the omission of an earned income tax credit (EITC.) As our readers know, Show-Me Institute writers have been strong proponents of a non-refundable EITC, and I supported its inclusion in the comprehensive tax reform packages that were filed this year. The program has the potential to help low-income Missourians, and is a far superior reform to bad ideas like minimum wage increases.

That’s why it was so disappointing that just as the EITC was on the verge of passing the Senate as part of House Bill 2540, an amendment struck. The proposed amendment, offered by an EITC supporter, would have stripped out the provision that would have essentially funded the EITC and an additional 0.1% reduction to the individual income tax. In response, the bill sponsor proposed instead to omit those effectively co-dependent sections from the final legislation, and that’s what the Senate agreed to. The revenue source for the EITC was gone, and with it, the EITC as well.

That’s why the cookie-cutter characterizations of the EITC ordeal by some Missouri news outlets is so off-putting. First, to portray tax reform as an either-or proposition—that you’re either “for corporations” or “for working families“—is fundamentally wrong as a framework for understanding tax policy. But secondly, to offer that portrayal with respect to the tax reform push of 2018, which included an EITC up until the final hours of the session, is especially misleading. Had it not been for the curious legislative decision to play chicken with a revenue provision in the waning hours of the session, the EITC would be on its way to enactment today. Alas, it isn’t.

A non-refundable EITC remains good policy. While its prospects are good for future years, it is nonetheless unfortunate that it did not pass in 2018. But to suggest that its failure this year was a matter of some form of class warfare is simply wrong, and unhelpful to Missouri newsreaders.

It’s a Gas Gas Tax!

Posted on by Patrick Tuohey

With apologies to The Rolling Stones, I write today about the Missouri Legislature’s passage of HB 1460. The bill would place before Missouri voters a November ballot measure to raise the state motor fuel tax gradually until it became 27 cents per gallon in July 2022. The measure would also raise the tax on compressed and liquefied natural gas to 27 cents per gallon equivalent beginning in 2026.

No one is eager to pay more taxes, but as my former Show-Me Institute colleague Joe Miller wrote in 2015:

Much of the [Missouri Department of Transportation (MoDOT)] problem lies in the gradual deterioration of the user-fee funding base of MoDOT, specifically the state fuel tax. The fuel tax last increased in 1996, and Missouri now has the country’s fifth lowest regular gasoline tax and fourth lowest diesel fuel tax.

Miller later discussed the MoDOT funding problem in his February 2016 policy study. The reasons stem from a decline in revenue from user fees such as the fuel tax, an increase in highway construction costs, and the resulting risk of losing federal matching dollars. Miller explored several possible solutions, including tolling and increasing fuel taxes, and even the pros and cons of doing so (see page 28 of the study).

The money needed to maintiain our transportation infrastructure will have to come from somewhere. Voters were correct to reject the statewide sales tax proposed in 2014. User fees such as a fuel tax are vastly more fair.

I look forward to participating in the public debate over the role of the government in providing for infrastructure, the needs and benefits of maintaining a healthy highway system, and the most efficient way of doing both.

Lawmakers Give Missourians a Tax Break

Posted on by Patrick Ishmael

State Lawmakers have cut income taxes for Missourians with a bill that now heads to the desk of Governor Eric Greitens. The House and Senate have passed a compromise version of HB2540, which formerly dealt with a whole host of important tax issues but in the end grappled primarily with individual income tax rate reductions. Formerly over 400 pages, the new version of HB2540 is now fewer than ten pages—and it’s a powerful handful of paper.

Specifically, the bill reduces the individual income tax rate by four-tenths of a percent (from 5.9% to 5.5%), paying for that reduction by removing some of the federal tax deductibility that Missouri currently permits. That’s progress, but the bill would have been even stronger if language that created a non-refundable earned income tax credit could have been retained. Unfortunately that provision was stripped out late in the Senate debate of the bill after a trigger provision that would have paid for it (pending a Supreme Court case) was put on the chopping block.

Still, the bill as passed is an important one that continues the downward trajectory of the state’s individual income tax rate. In truth, it is but another step toward eliminating growth-destroying income taxes in this state, with many steps to go. But that long-term trend doesn’t detract from the importance of HB2540’s enactment, now and in the future. Congratulations to all the legislative leaders involved in this effort.

Legislature Slashes Business Taxes

Posted on by Patrick Ishmael

It took a roundabout way to get there, but the House (last night) and the Senate (today) passed Senate Bill 884, the bill that became the vehicle for the corporate income tax reform that we talked about late last month. The final bill sets the new corporate income tax rate at 4%, making it the second-lowest corporate income tax in the country. The rate will go into effect in 2020 and should be roughly revenue-neutral, thanks to other provisions in the reform package.

That isn’t to say that the bill passed without drama. The initial, proposed corporate income tax rate was originally going to be 3.5 percent, based on Department of Revenue projections of what a revenue-neutral rate would look like. Unfortunately, that initial figure included a calculation error, and while the eventual 4-percent rate was the result of a better estimate, some legislators still had misgivings about that figure, too. Ultimately, however, the revised bill passed comfortably in both chambers.

Much can (and should) be said about the the fiscal note process and fiscal note products of the Missouri legislature, and no doubt much more will be said about it. For now, however, it is enough to say that the leaders who got this over the finish line deserve credit for their efforts and commitment to this important reform.

Government Union Reform Passes the Legislature

Posted on by Patrick Ishmael
Meaningful labor-reform legislation is on its way to the Governor’s desk. Last night the Missouri Senate passed an amended version of House Bill 1413, and this afternoon the House passed it as well, sending it to the Governor. Put briefly, HB1413’s transparency and accountability measures will go a long way to ensuring that the interests of both government employees and taxpayers are protected. Show-Me Institute analysts have talked about these issues extensively over many years—including, for example, union recertification, financial transparency, and paycheck protection—and I’m delighted at least one substantive version has finally made it across the finish line.
 
In contrast to private unions, government unions are often uniquely positioned to choose the parties they will negotiate with when they collectively bargain. Accordingly, it is incumbent on policymakers to ensure that workers subject to these agreements have their voices heard, and for taxpayers’ interests in transparency and stewardship to be protected throughout these processes.
 
And to reiterate, at one time there was a broad consensus on the problems that government unionization would impose on good governance objectives. Indeed, the Show-Me Institute’s concerns about government unions are not dissimilar to those of Franklin Delano Roosevelt, who said that “[a]ll Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service.”
 
The reforms contained in HB1413 represent a move toward good governance and better, more responsive representation for government employees. While more will need to be done in the future, passage of HB1413 addresses many of the concerns that Show-Me Institute analysts have raised about state labor policy over the years. Congratulations to the legislative leaders who made this happen.

The Government Shouldn’t Mandate a “Living Wage”

Posted on by Emily Stahly

On the last Monday of the legislative session, almost 90 people were arrested in downtown Jefferson City for blocking a street while protesting for economic and racial justice. The group identified itself as the Poor People’s Campaign, and one of its major goals is to raise the minimum wage. Its website states, “We demand the immediate implementation of federal and state living wage laws that are commensurate for the 21st century economy…”

Here at Show-Me Institute, we have written extensively about raising the minimum wage: how it increased unemployment and decreased hours worked in Washington D.C. and Seattle (here is a closer look at Seattle), how it would harm Kansas City workers, and why it actually hurts low-income and low-skilled workers the most. Let’s not forget how a “living wage”—usually pegged at $15/hour—would cost Missouri up to 218,000 jobs according to one study.

Moreover, the American Enterprise Institute put out a study just last month that showed how recent state minimum wage increases that were over a dollar decreased employment among low-skilled workers. Despite all of this evidence, there is still an initiative in Missouri to put a $12/hour minimum wage on the November ballot.

Wanting to improve the lives of poor Missourians is a noble goal, but there are better policies than mandating a higher minimum or “living” wage. For instance, implementing an earned income tax credit in Missouri and pursuing occupational licensing reform could open the door to higher incomes without negatively affecting employment. If organizations like the Poor People’s Campaign really want reforms that will help low-income Missourians, they should abandon the minimum wage and pursue more economically sound policies.

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