Dave Helling recently responded to my Show-Me Institute colleagues’ piece on what Missouri should learn from Kansas’s tax changes a decade ago. He questions whether Missouri’s current discussion is meaningfully different from what happened under former Kansas Gov. Sam Brownback.

I respect Dave and welcome the debate. Kansas belongs in this conversation. But if we are going to invoke it, we should be clear about what it demonstrates.

Kansas did not experience instability simply because it lowered tax rates. It ran into trouble because revenue fell precipitously and the state did not appropriately adjust its fiscal structure. Lawmakers enacted sharp tax reductions, created a large pass-through exemption, and left spending commitments largely intact. The result was a structural imbalance.

That is the lesson.

Dave suggests that state tax policy has only a marginal relationship to economic growth. It is true that no state controls the national business cycle. But it does not follow that tax structure is economically irrelevant.

Growth reflects millions of individual decisions—where to work, invest, expand, or relocate. Tax policy influences those decisions at the margin. And marginal decisions, aggregated across an economy, shape long-run performance.

If tax policy does not meaningfully affect behavior, it becomes difficult to explain why businesses restructured to qualify for Kansas’s pass-through exemption, why cities such as Kansas City offer tax abatements and other tax incentives to attract employers, or why area policymakers worry about the Border War. Incentives matter. They always have.

Both Kansas City and St. Louis are about to vote on retaining their 1% earnings taxes. Does anyone doubt the tax is one more incentive to live and work outside city limits?

None of this means that tax cuts guarantee prosperity. Lower rates increase the after-tax return to work and investment; they do not override broader economic conditions. But acknowledging limits is not the same as declaring irrelevance.

Kansas was not a clean test of “supply-side theory.” It did not eliminate its income tax. It reduced rates quickly, carved out a significant exemption, and failed to align revenue reductions with sustainable fiscal adjustments. When revenues declined more than expected, the state lacked sufficient buffers.

That was a structural failure, not proof that tax policy is immaterial.

Missouri’s debate, then, should center on structure and discipline. Any serious reform would require conservative revenue estimates, a modernized and stable tax base, adequate reserves, and spending aligned with realistic collections. Without those elements, skepticism is warranted. With them, instability is not inevitable.

There is also a tension in arguing that tax policy has little influence on economic outcomes while simultaneously warning that changing it risks serious harm. If tax structure truly operates only at the margins, its effects—positive or negative—cannot be dismissed when convenient and amplified when politically useful.

The more accurate position lies between extremes. Tax structure is neither a magic lever nor a null variable. It is one component of competitiveness, and like any component, it must be designed responsibly.

Kansas offers a caution about execution. But the Kansas story does not settle the broader question of how Missouri should structure its tax system going forward.

That question deserves a debate grounded in fiscal mechanics and economic incentives instead of caricatures.

The post The Lesson from Kansas—and the Question for Missouri appeared first on Show-Me Institute.

A couple of weeks ago CNBC released its annual list of the Top States for Business 2023. Missouri was an unimpressive 32nd out of the 50 states plus the District of Columbia. Wondering what pulled us down? Well, this year CNBC decided that workforce quality would get the most weight of the 10 components of the index. And in that category, Missouri ranked 49th. We must not stack up too well against other states when it comes to the percentage of workers with college degrees or even industry credentials. Apparently, we also don’t compete well on the outmigration of educated workers, or on worker training programs, or on worker productivity.

So, imagine my surprise when the governor had a press conference just days later to announce a long list of Missouri’s “top” rankings. On some list we rank first in on-the-job-training. That would be for the number of participants, not quality or outcome, but still. There’s a list out there where we’re ranked second for apprenticeships and one where we are fourth for small-business jobs. The list of rankings is described as “incredible statistics that prove why Missouri is the Show-Me state.” Incredible indeed. Sadly, the governor’s list doesn’t include any source information, so we can’t tell who is saying all these complimentary things about our state.

As someone who follows the Missouri K-12 education system pretty closely, I’m not that surprised by the CNBC ranking. Education in the state is in a downward spiral. Last year, 70 percent of our fourth-graders scored below grade level on a nationally administered test. These children are moving on to the reading-to-learn years, and they haven’t learned to read. Middle school isn’t any more promising. Less than one-quarter of our eighth-graders can do math at grade level, according to the latest (2022) national assessments, and just 28 percent have grade-level reading skills.

When students start high school without having mastered the skills they need to succeed, the effects are predictable. Last year, just 60 percent of our 2022 high school graduates met the Missouri Department of Elementary and Secondary Education’s (DESE’s) criteria for being college or career ready. It’s hard not to feel sorry for the 40 percent who walked across the stage and were handed a diploma even though they were unprepared for the next stage of their lives. Since we’re looking at rankings, did you know that last year Missouri ranked 43rd for the percentage of high school students who took a college-level Advanced Placement (AP) test in high school? We’re not talking about passing an AP exam; only one in five high school students even took one. Also, less than 8 percent of graduating high school students completed the Career and Technical Ed (CTE) certificate program.

What are the consequences of the poor job we’re doing of preparing our students for life after high school? According to the St. Louis Federal Reserve, the percentage of Missourians with bachelor’s or master’s degrees has been declining in recent years. Not by much —just from 31.9 percent for bachelor’s to 31.7—but is that the direction we want it going? There’s a similar trend line for graduate degrees, which had been increasing every year until a couple of years ago, when they began to decline.

We seem to have a workforce problem, and it appears to be getting worse. Our K-12 enrollment has been declining since before the pandemic and will continue to decline based on the size of recent kindergarten classes. And within those smaller groups of students, the percentage of kids who are at grade level is declining. Smaller percentages of smaller high school graduating classes will be ready for the next stage in their lives. We need leaders who are ready to confront those facts and do something about them. The future of the state depends on it.

These leading indicators may signal what’s next for our work force, but it’s not too late to turn things around. States all around Missouri are letting parents pick where their children attend school—public or private—and having state education money follow them. Families in these states can tailor the education of each of their children, even when those needs differ within the same family. Neighboring states are implementing aggressive early literacy programs, with Mississippi being a standout, and rethinking high schools. Innovation and true accountability are happening . . . elsewhere. Meanwhile, Missourians are being handed a cherry-picked list of statistics that we’re supposed to get excited about.

The post Cherry-picked Data Can’t Hide the Truth about Missouri’s Workforce appeared first on Show-Me Institute.

This November, Laclede County residents will vote on reducing an obscure tax that places the county at a competitive disadvantage compared to its neighboring communities.

In 1985 the State of Missouri changed the way local governments tax commercial and industrial property. It eliminated the tax on business merchandise and inventory and replaced it with a surtax on the value of commercial real estate. Every county that year calculated the new surtax (also known as the commercial surcharge) at a revenue-neutral replacement level for the lost business inventory taxes. The change, made by an amendment to the state’s constitution, was explicit that the replacement levy calculated by the counties could be lowered only by voters, not elected officials, and that the surtax would not adjust downward as assessed valuations increased. This provision puts the commercial surtax at odds with most other property taxes in Missouri, for which the tax rate is supposed to go down as assessed valuations go up.

When the rates were established in 1985, Missouri’s economy looked very different than it does today. Kansas City and the City of St. Louis played larger roles than they do today (especially St. Louis). But Laclede County, likely because of inventory taxes generated by its role as a regional manufacturing hub, bucked the trend toward low surtax rates in most counties. It set its surtax rate at $1.03 per $100 of assessed valuation. That is the 14th-highest rate among Missouri’s 115 counties, and much higher than those of its neighboring counties. By comparison, Texas County has a commercial surtax rate of $0.68, Wright’s is $0.66, Pulaski’s is $0.49, Webster’s is $0.37, Dallas’s is $0.31, and Camden’s surtax is a miniscule $0.03.

Assessed valuations have grown enormously since the tax was introduced. For example, the commercial assessments in Laclede County have gone up almost 400 percent between 1985 and 2021, from $23 million to $108 million, yet the surtax rate has never been reduced to offset that increase. The combination of a high tax rate and the difficulty of reducing it puts Laclede County at a competitive disadvantage compared to other counties in its area.

To address this problem, the Laclede County Commission decided in August to propose lowering Laclede County’s surtax rate from $1.03 to $0.51. If passed by voters, this notable reduction in the commercial surtax rate would both spur economic activity in Laclede County and reduce the perceived need for tax subsidies. In general, Laclede County and its municipalities have been hesitant to use tax subsidies to selectively benefit a small number of businesses. That is to be commended. If this surtax cut passes, the county and its cities can remain focused on setting good policies and low tax rates for everyone, not special deals for a few.

The Lebanon R-3 school district has come out in opposition to this tax reduction, projecting a loss of $275,000 from the tax cut out of total revenues of $58 million. That is just $60 per student in a district that spends over $12,500 per student and one that received over $4 million in federal stimulus funds for a now-past economic emergency. Beyond that, personal property taxes for the school district (e.g., car and boat taxes) are expected to come in significantly higher than ever before due to the dramatic increase in used car values. In short, Lebanon R-3, like many taxing districts around Missouri, has more money than it knows what to do with, yet the district is opposing a tax cut to help grow business and jobs in Laclede County.

As Laclede County continues to grow and commercial assessed valuations continue to increase, actual revenue reductions for local governments that receive the tax money will be small. That’s not voodoo economics; it simply reflects expected growth in population, business, and assessed valuation.

Laclede County leaders deserve credit for placing this surtax reduction proposal on the ballot this November so voters can have a say in making their community more economically competitive. If approved, this reasonable and beneficial tax cut will help grow Laclede County’s economy, and everyone benefits from that.

The post Laclede County Should Reduce Its Commercial Property Tax Surcharge appeared first on Show-Me Institute.

This November, Clay County residents will vote on reducing an obscure tax that places the county at a competitive disadvantage compared to its neighboring communities.

In 1985 the State of Missouri changed the way local governments tax commercial and industrial property. It eliminated the tax on business merchandise and inventory and replaced it with a surtax on the value of commercial real estate. Every county that year calculated the new surtax at a revenue-neutral replacement level for the lost business inventory taxes. Among the reasons for the change was a desire to base the tax on the value of real estate, which is more consistent than the ever-changing values of inventories. The change, made by an amendment to the state’s constitution, was explicit that the replacement levy calculated by the counties could be lowered only by voters, not elected officials, and that the surtax would not adjust downward as assessed valuations increased. This puts the commercial surtax at odds with most other property taxes in Missouri, for which the tax rate is supposed to go down as assessed valuations go up.

When the rates were established in 1985, most of the collar counties around Kansas City and St. Louis were much smaller than they are today, with fewer businesses. Consequently, these collar counties set their commercial surtaxes at a low rate. But Clay County, likely because of inventory taxes generated by its massive Claycomo Ford Plant, bucked that trend. It set its surtax rate at $1.59 per $100 of assessed valuation. That is the third-highest rate in the state, and the highest in Western Missouri. By comparison, Jackson County has a commercial surtax of $1.44, while Cass’s rate is much lower at $0.54 and Platte’s surtax is a mere $0.36.

Assessed valuations have grown enormously since the tax was introduced. For example, the commercial assessments in Clay County have gone up 287 percent between 1985 and 2021, from $302 million to $1.17 billion, yet the surtax rate has never been reduced to offset that increase. The combination of a high tax rate and the difficulty of reducing it puts Clay County at a competitive disadvantage compared to other counties in its area, especially its Northland neighbor and competitor, Platte County.

This is a problem for Clay County. These differences may not have been a big deal in 1985, when the tax alteration was a neutral one for Missouri businesses and more of them were located in our central business districts. But it is a problem now. After much discussion and debate, the Clay County Commission decided in July to propose lowering Clay County’s surtax to $1.44, equal to Jackson County’s rate. If passed by voters, this modest reduction in the commercial surtax rate would both spur economic activity in Clay County and reduce the perceived need for tax incentives. As Clay County continues to grow and assessed valuations continue to increase, revenue reductions for local governments that receive the tax money will be miniscule or nonexistent. Even with the tax cut, revenues from the tax will almost certainly grow past current levels in the near future. That’s not voodoo economics; it simply reflects expected growth in population, business, and assessed valuation.

Clay County leaders deserve credit for placing this surtax reduction proposal on the ballot this November so voters can have a say in making their community more economically competitive. If approved, this reasonable and beneficial tax cut will help grow Clay County’s economy, and everyone benefits from that.

The post Clay County Should Reduce Its Commercial Property Tax Surcharge appeared first on Show-Me Institute.

The timing of this change is important. In 1985, Perry County set its rate at $1.06 per $100 of assessed commercial valuation. This is a much higher rate than other counties in the region. Perry County has long had a strong manufacturing base, and it is likely that those industrial companies generated substantial inventory taxes that necessitated—at the time—a high surcharge replacement tax rate. By comparison, Bollinger County’s rate is much lower, at $0.13, St. Francois’ rate is a mere $0.20, St. Genevieve is just above that at $0.21, Madison’s rate is $0.25, and Cape Girardeau tops out the rest of the area at $0.37. Perry County is almost triple the surcharge tax rate for its region.

Assessed valuations have grown enormously since the tax was introduced. For example, in 1986 (the first year after the current assessment system was implemented) the total assessed valuation of Perry County was $84 million and $11 million of that was commercial property. As of the most recent reassessment in 2021, the total assessed valuation of Perry County is $404 million, with $74 million being commercial (an increase in commercial valuation of more than 500 percent). The surcharge rate has never been reduced to offset that significant rise in commercial assessed valuation, as happens with other property taxes. The combination of a high tax rate and the difficulty involved with reducing it puts Perry County at a competitive disadvantage with the rest of the region in 2022.

This is a problem, but a problem without blame. These differences were probably not a big deal in 1985, when the tax alteration described earlier had a neutral effect for Missouri businesses. But it is a major problem now. Reducing rates as commercial assessments rise is simply an issue of fairness. It would not lead to a tax revenue decrease but would simply mean treating the commercial surcharge like other property taxes in Missouri.

Another issue with reducing the tax might be more complicated. Lowering the commercial surcharge rate could both spur economic activity and reduce the perceived need for tax incentives. Frankly, from a government revenue perspective, many of the dollars lost to the surcharge reduction could be replaced by a reduction in the tax incentives that have been given to select businesses. Perry County and Perryville have each engaged in harmful tax subsidies like tax-increment financing. Reducing the surcharge rate for all businesses while eliminating the use of tax subsidies for a few, select businesses would be a public policy win–win for Perry County.

The elected officials in Perry County should place surcharge tax reduction proposals on the ballot so that voters can have a say in making their region more economically competitive. The state legislature should then authorize a vote on changing the Missouri Constitution to allow the commercial surcharge to be reduced as assessments increase, like other property taxes. These two changes would help grow the economies of both Perry County and Missouri, and everyone benefits from that.

The post Perry County Should Reduce Its Commercial Property Tax Surcharge appeared first on Show-Me Institute.

Per the Tax Foundation, states with the best tax systems “will be the most competitive at attracting new businesses and most effective at generating economic and employment growth.” A state should aim for a tax system that does not negatively affect business decisions; you don’t want businesses to relocate or decide not to expand because of tax concerns. Research has found that taxes that are low and broad based are least likely to affect business decisions in this way, and therefore make the best tax systems.

Missouri ranked relatively well for state corporate income tax, unemployment insurance tax, and property tax. Areas for improvement are the individual income tax and sales tax, as Missouri ranked 21st and 25th respectively. (It’s important to note that local taxes are factored into the index, but the main focus is state taxes, so this may not be a full picture of the taxes that affect Missouri’s businesses.) As explained in the index, Missouri has a good definition of taxable income, but a lot of income tax brackets, standard deductions, and exemptions, which complicate the tax system. Missouri’s highest income tax rate, 5.4 percent, is higher than the highest tax rate of 20 other states. The sales tax index is affected by sales tax rates, including the high local sales tax rates from numerous special taxing districts across Missouri.

Lawmakers should act to improve our ranking in this index—not just for bragging rights, but to attract businesses to our state. Lowering tax rates is one way to move Missouri in the right direction. Lawmakers should continue to lower income tax rates and work to rein in special taxing districts to improve the business tax climate in our state.

The post State Business Tax Climate Ranking appeared first on Show-Me Institute.

The study, published by ASU’s Center for the Study of Economic Liberty, ranks St. Louis 31 out of 115 cities in North America in regulatory competitiveness. That ranking doesn’t seem half bad, but 31 out of the 66 U.S. cities included in the study isn’t great. Among American cities, St. Louis is just middling.

The table below shows how St. Louis fares in the various categories. St. Louis ranks 12 overall in “Paying Taxes,” but sales taxes are not included in the scoring. Anyone who’s shopped in the city knows how steep the city’s sales taxes are; St. Louis’s ranking would likely be lower if they were included. In addition, “resolving insolvency” is a ranking where all American cities are tied for first place, so not much should be made of that stat in this context.

In two critically important categories, St. Louis is less than impressive, ranking 60 in “Starting a Business” and 47 in “Employing Workers.” These scores incorporate regulatory costs to business owners, including compliance fees for mandatory procedures and wage regulations like overtime requirements and probationary periods. As our low rankings indicate, starting and staffing a business is a costly and onerous process in St. Louis—and that’s not the inviting economic environment that we want.

Policymakers must recognize that all business regulations carry costs for business owners, and St. Louis’s costs are too high. 46 other major U.S. cities have found less costly ways to meet their public policy objectives for employing workers. And St. Louis was outranked by cities in the U.S., Canada, and Mexico when it came to ease of starting a business!

All this suggests that St. Louis has a lot of room for improvement when it comes to business regulations. Policy changes like lowering licensing requirements, taxes, or procedural costs are just a few things that may get St. Louis a better ranking. Without reform, St. Louis will continue to be mired in mediocrity.

The post St. Louis Ranks Poorly in Ease of Doing Business Study appeared first on Show-Me Institute.

Far from it. Of the 77 U.S. cities that KPMG ranked (which was not exhaustive of all major metros), Saint Louis ranked 45th and Kansas City ranked 46th. Among the cities cheaper than Saint Louis (and Kansas City) are regional competitors like Nashville, Omaha, Cincinnati, Memphis, Indianapolis, Cleveland, and Oklahoma City, to name a few. Worse yet, Saint Louis was more expensive than all 18 Southeastern cities KPMG looked at, from Atlanta to New Orleans.

So where did the Post-Dispatch get a top ten ranking for Saint Louis? If we only consider regions with populations greater than two million (of which KPMG ranked 31), Saint Louis is the 9th cheapest. I will leave it to the readers of this blog to decide if Saint Louis should pat itself on back for being cheaper than New York, Los Angeles, and Chicago, when it has higher costs for businesses than Nashville, Memphis, and just about every other regional competitor. But if we do decide to use population as criteria, it seems more justified to look at metros with populations similar to those of Saint Louis and Kansas City (between two and three million residents). When we do that, Saint Louis is 7th and Kansas City is 8th out of 14 such cities. That seems awfully middling.

That’s probably why, if one reads the study that the Post-Dispatch reports on, they’ll find that it does not claim that Saint Louis is among the most competitive cities in the country. KPMG didn’t even break down cities by population in the study, choosing instead to do so by region.  The Post-Dispatch story (while citing the study) is actually based on an ancillary KPMG press release, which lauds Cincinnati, and is careful to note context.

Titling an article “St. Louis among most cost-competitive cities for business, report says” when the report in question says no such thing is a questionable decision for a newspaper of record. But this is not just a problem with the headline. The article itself is equally misleading, and it was not a headline writer who placed this story front and center on the Post-Dispatch’s website less than a week before a vote on multiple tax issues (where the city’s business climate is an issue). 

The post Report: Saint Louis, Kansas City *Not* Among Most Cost-Friendly Cities for Business appeared first on Show-Me Institute.

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I have blogged ad nauseam about the tax cuts in Kansas and how Missouri needs to respond, but just as in “Rear Window,” there is more going on than just in the one apartment building. Nebraska likely will cut taxes and the governor of Oklahoma will pursue some sort of tax cut. Last month, Kentucky’s Blue Ribbon Commission on Tax Reform released its final report on recommendations they believe the state should undertake to reform the state’s tax code. For a good breakdown of the commission’s proposals, see here.

This is not the first time I have blogged about the Kentucky Commission. I know, this is the Show-Me State, and it is understandable to want to see how these reforms impact other states and not react to “maybes.” But Kansas is not a “maybe,” it is very, very real. So I once again stress the point that inaction on the tax front is not an option for Missouri. We need to become more competitive. Now, to be fair, legislators are juggling various proposals in order to reform the state’s tax code, but the gap between what legislators want to do and what actually gets done is about as wide as the Grand Canyon.

It is not too late for Missouri to remain competitive with its neighbors. However, if Missouri continues to twiddle its thumbs while our bordering states make themselves more attractive from an economic standpoint, I will start to feel worse than the killer’s victim and late wife in “Rear Window,” Mrs. Thorwald.

The post A Very Special Update appeared first on Show-Me Institute.

Car-rental companies and airlines say heavy taxes on their services damp demand. With rental cars, some consumers, particularly leisure travelers, are discouraged from travel or opt for smaller cars to hold down the price of a rental, where taxes can sometimes exceed the car cost.

“Taxes clearly have an impact on consumer behavior,” said Richard Broome, spokesman for Hertz Corp.

A survey last year by the U.S. Travel Association, a nonprofit industry group, found 49% of respondents had altered plans because of high travel taxes, such as by staying in less-expensive hotels and spending less on shopping and entertainment. Ten percent of people surveyed said they had changed city choices for trips because of taxes.

Kansas City’s tax levels rank just behind mega-cities such as Chicago, New York City, and Boston, and in a competitive travel market where fuel is expensive and money is tight, every increment of tax can have consequences. I love my hometown, but does Kansas City have the amenities of Manhattan that would allow it to get away with charging a little more for a hotel? Of course not. As Policy Analyst David Stokes noted last year in a commentary about hotel taxes in Jefferson City, “hotel tax votes are often an easy choice for voters, because it can seem like an attractive idea to tax somebody else to fund your own public service or community asset.” But as we have noted before on this blog and in print, hotel taxes are not just a tax on tourists. They also are a tax on the city’s competitiveness, as the Wall Street Journal also notes.

Unfortunately, Kansas City’s abysmal tax ranking(s) probably will not change anytime soon. Not only have the city’s leaders spent citizens into a hole over the years — raising the city’s debt levels to among the worst in the region — but they seem intent on larding up the city’s budget with taxpayer-funded developments, from streetcars to convention hotels to entertainment zones. This is not a sustainable path. The city must change course.

The post Kansas City Among The Nation’s Worst For Tourism Taxes appeared first on Show-Me Institute.

Why is this important? These states are all making moves to ensure their state’s economic competitiveness. Missouri already lags behind most of the country in economic growth. It will find itself falling further behind other states if it does not match or exceed the reforms being put forward in other states.

That is why it is important for Missouri to act quickly. Patrick and I have both written about the benefits of Missouri eliminating its corporate income tax and how it could be done in a way that would not negatively affect state revenues via the elimination of economic development tax credits. Missouri should eliminate its corporate income tax because it benefits all businesses, not just those who are politically favored. It also lessens government involvement in planning the economy due to the removal of tax credits.

Missouri does not have the least attractive environment for business . . . yet. However, its current inaction in the face of other states’ increasingly aggressive moves to make their states more competitive, especially Kansas, put Missouri at risk of being a permanent economic wasteland.

The post The Corporate Income Tax . . . Leaving Missouri Behind? appeared first on Show-Me Institute.

The new law reduces the state’s top tax on wage income from 6.45 percent to 4.9 percent. Much more dramatically, however, it also abolishes the state income tax for many entrepreneurs and small business owners.

Under the new law, partnerships, S-corporations, and sole proprietorships are now exempt from paying any state income tax in Kansas. For example, if the owner of an S-corporation has $10 million in sales and $500,000 in “pass-through income” — meaning income after wages and other expenses — he would pay zero taxes to the state of Kansas on his $500,000 income.

Officials in Kansas make no secret of the fact that they want to promote their state as a Midwestern tax haven — appealing to entrepreneurs and small businesses in neighboring states, including Missouri, which has a top individual income tax rate of 6 percent, or $30,000 on $500,000 in income.

If small business owners in Missouri, Oklahoma, or other states want the same deal that Kansas is now offering to more than 190,000 small businesses, they just need to relocate to the Sunflower state.

How big a threat does this pose to the future growth and prosperity of our state? As economists, we can offer a few back-of-the-envelope calculations.

Missouri entrepreneurs in the 11 counties bordering Kansas would presumably be among the first to move. The population within these counties is 1.48 million people, or just more than 24 percent of the state’s total. For 2010, the total aggregate income of people filing individual income tax forms in Missouri for partnerships, S-corporations, limited liability partnerships, and sole proprietorships is $13.2 billion. Based on the population distribution, we would therefore expect that people with pass-through income in the border counties would account for roughly 24 percent of the $13.2 billion, or $3.17 billion.

Let us suppose that 10 percent of small businesses and entrepreneurs in those border counties deemed it worthwhile to move. That would translate into a $317 million reduction in goods and services and a roughly 1 percent reduction in income in the border counties. Based on 2011 income per worker, Missouri would see about 4,500 jobs go across the border.

Of course, people in other parts of Missouri might also elect to take advantage of the welcome mat that Kansas has put out for entrepreneurs and small business owners and that would further erode the base of our already weak and under-performing state economy. Entrepreneurs who might otherwise have launched their new business in Missouri may choose to launch it in Kansas instead.

Oklahoma Gov. Mary Fallin is advocating a reduction in her state’s top income tax rate to 4.5 percent from the current 5.25 percent, and she has cited the new Kansas law as cause for urgency. “Oklahoma needs to compete with our neighbors,” Fallin said. “To do that we need to lower our income tax.”

In a recent press conference, Missouri Gov. Jay Nixon sounded strangely complacent, saying “we haven’t spent a great deal of time talking about what they (Kansas) did.” With all due respect, we suggest that this is something worth discussing.

Our lawmakers need to start thinking seriously about creating a more favorable tax regime for economic growth and job formation in Missouri.

Joseph Haslag is chief economist and Michael Podgursky is a co-founder and director of the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post More Bad News for Missouri Competitiveness appeared first on Show-Me Institute.

Raising the tax rates on “sin” products would be particularly harmful to convenience and grocery stores close to the state border, because they would lose business to states that assess lower tax rates relative to Missouri. As a similar consequence of this policy, fewer people and businesses would locate to Missouri because the costs of living and doing business would be higher here. By keeping its tax rate low relative to other states, Missouri can help ensure that its residents will shop within the state, and it can incite individuals located near the border to shop here, as well. As a consequence, Missouri can generate a higher amount of revenue.

Missouri residents and businesses would be better off if the state government pursued alternative strategies to address the budget deficit than increasing selective sales taxes on cigarettes and alcoholic beverages (or on fatty foods, soda, and tanning). If it created a low-tax environment instead, Missouri would attract more businesses and individuals to the state, and they would contribute additional tax revenue. Alternatively, if the state government stopped carving out large sections of the tax base and subsidizing the favored few, it would have fewer expenditures to cover.

The post How “Sinful” Budgeting Hurts Business in Missouri appeared first on Show-Me Institute.

As unlikely as it may seem, this middle-aged, middle-income, Midwestern state is pushing the envelope on its way toward fundamental tax reform. […]

[A]lthough Missouri’s revenue replacement could prove difficult politically, the benefits from reform could be enormous if the process is administered well and the constitutional amendment is carefully crafted.

In their discussion, the authors cite Prof. Joseph Haslag and Abhi Sivasailam’s recent Show-Me Institute policy study, “Previous Estimates Overstate ‘Fair Tax’ Rates, Harms,” in the appendix.

Laffer, et al., also include a comparison of Missouri and Tennessee, and they provide evidence that Missouri would experience additional growth if it eliminated its personal income tax. From chapter 2:

During the past 10 years, if Missouri had just caught up with the average of the states with no income tax, the average Missouri resident’s income would be more than $12,000 higher. That is amazing. Taxes really do matter. […]

The evidence is clear: States without an income tax outperform in every conceivable fashion than their higher-taxed brethren and have more tax revenues.

Given the data at hand, it is hard to imagine any more conclusive results from a cross-section time series of states that could be obtained in favor of Missouri’s tax proposal. Like many states in our current economic climate, Missouri needs help, and from the looks of it, a switch from onerous income taxes to broad-based sales taxes is exactly what the doctor ordered.

This echoes what Jenifer Roland and Dave Roland concluded in their 2009 policy study for the Show-Me Institute, “All Caught Up: How Tax Policy May Have Allowed Tennessee to Outgrow Missouri.”

The state snapshot for Missouri contains some good news and bad news. In 2008, Missouri’s personal income per capita cumulative growth is higher than the national average, but the state experienced negative net migration for the first time in a decade. This indicates that, when voting with their feet, people are choosing to locate outside of Missouri. On the 2010 ALEC-Laffer State Competitiveness Index, where 1 is the best and 50 is the worst, Missouri has an economic performance rank of 35 and an economic outlook rank of 15.

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