Missouri suffers from a stubborn economic growth deficit that has grown larger over the past two decades. Signs of economic stagnation include below-average rates of job creation and population growth.
Part of the explanation for the widening “growth deficit” is a tax system that does not seem to be designed to improve the state’s economic competitiveness. There is extensive economic literature showing that states with rising tax burdens lose jobs, income, and businesses to other states. Although Missouri is a relatively low-tax state, its tax advantage has been declining in recent years. Today its tax burden is roughly on par with those of its neighbors. It’s not surprising that the state has had little success attracting new jobs and businesses.
We believe that Missouri can do better. The nine U.S. states with no income tax offer a particularly appealing model. They have enjoyed enviable success in attracting jobs, investment, and new residents. If Missouri phased out its own income tax, it could “break away from the pack” of Midwestern states. It would then offer a compelling alternative for prospective businesses and families interested in moving to the region and would increase wealth and opportunity for all of its residents.
This study provides an economically efficient and politically viable strategy for eliminating the state personal income tax (along with the state income tax and the capital gains tax) in Missouri within 14 years.
The proposal laid out in this study deals with the problems of mediocre economic growth and unsustainable growth in government spending. It is implemented in a way that does not lead to any reduction in real per capita state and local spending, meaning that public services will be maintained at existing real per capita levels. The plan does not require adding any debt to finance the income tax elimination. The proposal also provides a mechanism to deal with fiscal crises that may result from revenue shortfalls during recessions.