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While guest-hosting Mundo in the Morning on KCMO Talk Radio, Patrick Tuohey is joined by Elias Tsapelas to discuss the Missouri legislature’s effort to begin eliminating the income tax. They break down why Missouri’s tax climate is holding back economic and population growth, how a gradual phase-out could work, and why concerns about sales tax rates may be overblown.

The post Missouri’s Path to Eliminating the Income Tax with Elias Tsapelas appeared first on Show-Me Institute.

Property taxes are a vital and efficient source of revenue for local government, but various factors, including harmful abatements, inconsistent assessment practices, and consistently poor management in Jackson County, have eroded trust in the overall system.

The Solution

Property taxes work best when they are predictable, broadly based, and targeted to the local services that people benefit from. Right now, property assessments in Missouri are unpredictable and seem random to too many people. While tax-rate rollbacks help reduce these negative aspects of property taxes, the high inflation of recent years has limited the effectiveness of rate rollbacks. Missouri assessors should more uniformly assess residential property by using an average-based system instead of individually assessing every property, which leads to increased variance in values among neighboring properties and undermines trust.

Key Facts

• The 2025 Jackson County reassessment was once again a procedural disaster, leading to distrust in the system. Making Jackson County Assessor an elected position should improve the process by giving the voters and taxpayers someone to hold accountable.

• Surprisingly, cities in Missouri rely less on general property taxes than cities in any other state.

• Missouri local governments, such as school districts and fire districts, rank third among the 50 states for reliance on personal property taxes.

Which Taxes Damage Growth the Most?

Source: https://x.com/cremieuxrecueil.

Going in the Wrong Direction with Recent Reforms

In an effort to address the impact of higher property taxes in Missouri, the legislature first passed a senior property tax freeze option in 2023 and made major changes to the property tax system in 2025 during the special session. There are many problems with these bills, not the least of which are serious constitutional concerns that will likely be fought over in court. These plans are harmful simply because they reduce the property tax base. Unless local governments cut services in response to the enactment of these plans, they will almost certainly lead to higher tax rates on properties that are not subject to the property tax freezes or limitations, such as commercial property and multi-family housing. There will also be significant pressure to increase alternative taxes, like special sales taxes. Most concerningly, there will be an increased reliance on income taxes to fund local school districts through the foundation formula. Increasing our dependence on income taxes will harm economic growth in Missouri.

It would be better for the state to substantially change the biennial property assessment process. Missouri should eliminate the practice of sending thousands of assessors out into our neighborhoods every other year to individually assess every property. The Missouri State Tax Commission could work with county assessors, local realtors, and online real estate resources to determine average county increases (or decreases) in valuation for each reassessment cycle. Each residential, commercial, or agricultural property in a county could be adjusted based on the county’s average for that particular class of property. Tax rates could then be adjusted based on that average, and the vast majority of homeowners would be subject to the same resulting increase (or decrease) in their overall property taxes. This method would eliminate wide discrepancies from house to house that undermine faith in the current tax and assessment system.

Rolling Back Tax Rates in Kansas City

Families and property owners within the Kansas City 33 School District have been hit particularly hard by the continuously mismanaged assessment process in Jackson County and the unique rate-rollback exemption for that large school district. In 2023, when assessments in the school district went up 24%, the school board kept the tax rate exactly the same. That placed a real burden on homeowners, who saw their property taxes skyrocket. In 2025, after another round of substantial and contentious assessment increases, the school board approved a very slight 10-cent rate rollback. The Kansas City 33 School District should be required to roll back its property tax rates as assessments increase, just as every other taxing entity in Missouri does.

Change the Underlying Property Tax Base

Property taxes work best when the item being taxed is immobile. Taxing cars, boats, livestock, grain, and business equipment is not sound tax policy. While there is no way of knowing how many Missouri cars are improperly registered in Illinois, Kansas, or Arkansas in order to avoid Missouri’s property tax, the number is likely high. Missouri should phase out personal property taxes in a revenue-neutral manner by replacing them with slightly higher real property taxes.

Free the Livestock

Missouri farmers, ranchers, and tax assessors spend significant time counting and calculating the taxes owed on livestock, but the total tax revenue raised for all governments on all livestock throughout the state only amounts to about $10 million. Those paltry revenues do not justify the effort that goes into collecting the tax in the first place. Missouri should eliminate the personal property tax on livestock and replace it with a slightly higher tax rate on farmland.

Policy Recommendations

• Remove the Kansas City 33 School District’s exemption from property tax rate rollbacks (Missouri Constitution, Article 10, Section 11(G)).

• Eliminate personal property taxes, or, at a minimum, require that those tax rates roll back like real property taxes and expand RSMo §92.040 (which allows lower personal property taxes on business equipment) to more cities than just St. Louis and Kansas City.

• Eliminate personal property taxes on livestock as a wasteful expenditure of time and effort.

• Repeal or substantially amend the laws allowing for senior citizen property tax freezes.

• Change to a reassessment system for homes that is based on community sale averages, not individual property assessments.

The post Property Tax Reform appeared first on Show-Me Institute.

Missouri’s economy is suffering because of an overreliance on the income tax as a source of revenue.

The Solution

Continue to reduce or eliminate the use of the individual income tax and earnings taxes.

Key Facts

• Missouri collects around two thirds of state revenue through the income tax, which is the third-highest percentage among states, just after New York.

• Missouri’s GDP growth rate for 2024 was 2.3%, which ranked 30th in the country, falling well below the national average of 2.8%.

• Missouri’s two biggest cities rely on a 1% earnings tax, which will be increasingly problematic as non-city residents move toward remote work rather than traditional work in city-based offices and escape these taxes.

Income Taxes Are Holding Missouri Back

Missouri’s economy is once again lagging behind much of the country, and state and local tax structures are a part of the problem. Missouri has the third-worst reliance on income taxes as a share of state revenues in the country, just behind New York. Such a reliance on these harmful taxes—on income taxes at the state level and earnings taxes in Kansas City and St. Louis—has consequences.

Learning from Boom States

Missouri would be wise to take a page from the playbooks of zero-income-tax boom states such as Florida and Texas, which have been magnets for attracting and retaining people, jobs, and investment. In recent years, Missouri lawmakers have taken some steps to reduce the state individual income tax. Most recently, the legislature passed a law to gradually reduce the income tax to 4.5%, triggered by the state meeting certain revenue targets. However, there is no reason to stop those tax reductions at 4.5% if revenue targets continue to be met. Not only would income tax reductions allow citizens to keep more of their hard-earned money, but they would reduce the state’s reliance on income tax revenue and make the state more competitive.

Fiscal Year 2026 Revenue by Source

The lion’s share of state general revenue will continue to come from the income tax for the foreseeable future, but continuing rate reductions would lessen this reliance over time.

Policy Recommendations

• Allow the state income tax to fall below 4.5% with the goal of eliminating it completely.

• Remove the cap on the number of income tax rate reductions based on state revenue triggers and allow the rate to be reduced commensurate with the amount by which the trigger is exceeded.

The post Income Tax Reform appeared first on Show-Me Institute.

And we will admit, it can make us sound like hand-wringing naysayers, always seeing the glass as half empty. (In our defense, we have each spent two decades trying to successfully launch a combined six children into the world. Saying no is a big part of that. Honestly, we are both fun at parties.)

But isn’t securing population and economic growth a basic function of government?

No, it isn’t. A well-run government should not care about growing either its population or its economy.

According to the ideas of Charles Tiebout, cities (and other local governments) compete with each other for residents based on the services the governments offer and the taxes they impose. Cities that provide quality public services at reasonable tax rates will naturally grow, as more people choose to move into those communities. That increased demand will increase housing prices which, combined with zoning rules, generally prevents the city from growing more than its residents want to. Cities that provide poor services at high taxes will see population decline, for obvious reasons.

The forced need for growth—from a government point of view—only becomes necessary when the books are out of balance. Government leaders often push important financial obligations out into the future—hoping to pay tomorrow for what they purchase today. Those ballooning debts on the horizon make them susceptible to all the journeyman consultants and their economic impact chicanery that only makes the situation worse.

Instead, cities should understand their role is to play host to economic activity, not engage in it themselves. The folks who referee the kids’ soccer games at which I spent many Saturday mornings are not players in the game. Nobody asks them to make calls in a way that helps a particular team or drives up the combined score. Quite the opposite—we are alarmed by the idea that a referee may act on a team preference.

To turn planning and spending over to local elected leaders risks overreach and overspending. Overreach because elected leaders want to be seen as bold visionaries dreaming of “what could be” in order to capture the imagination of voters. Overspending because, well, concern about risk is greatly reduced when the consequences of failure are so widely and thinly spread.

As Heywood Sanders, a professor at the University of Texas at San Antonio, said at the Kansas City Library in 2015:

Don’t do what everybody else is doing. Okay? Period. There is an old saying that goes along those lines, “don’t think if you’re doing exactly the same thing that everyone else is doing except not quite as big or good or well, that it’s going to be any different.”

Private actors understand this. Why would they invest in a new convention center for Jefferson City or Springfield if they are just going to be the latest in a long line of cities to do so?  How does that make sense or play to either city’s strengths? It doesn’t—so they turn to elected leaders, who are swayed by the possibilities and unencumbered by the risk of investing their own money. Who cares if it works tomorrow—it feels good today!

If a city is to grow, the best our elected leaders can do is to make sure all the obstacles are removed and the rules are clear and evenly enforced. Everything else, including growth and winners and losers, needs to be determined by the players on the field.

The post What’s a City to Do? appeared first on Show-Me Institute.

The new state law creates three types of counties for property taxes:

1)        Five percent counties: These counties are made up primarily of Missouri’s smaller, rural counties. In these counties, upon local voter approval, a homeowner’s property tax liability can go up by no more than the lower of five percent or the national inflation rate during reassessment, unless voters approve tax rate increases or the homeowner improves their property. There are 75 counties in this category.

2)         Zero percent counties: These counties are made up primarily of mid-sized and suburban Missouri counties. In these counties, upon local voter approval, a homeowner’s property tax liability cannot increase at all during reassessment unless voters approve tax rate increases or the homeowner improves their property. There are 22 different listings for counties in this category.

3)         “Unaffected” counties (my term, not language from the bill): These counties are primarily Missouri’s large urban counties or counties in central Missouri, including the Lake of the Ozarks area. These 17 counties and the City of St. Louis are not included in this legislation and their tax and reassessment system will continue unchanged. It is worth noting that Jackson County, which has had by far the worst administration of assessment and tax collection in recent years of any Missouri county, is unaffected.

There are many reasons why these substantial changes to the system are bad, but the first one is that, in general, property taxes are the least harmful tax for economic growth. So, if you want to create a tax system that encourages greater economic opportunity for all Missourians, the property tax is the last tax you should focus on. Furthermore, these changes will almost certainly lead to greater governmental reliance on income taxes (mostly through the state’s foundation formula for school funding), which is exactly the wrong way to go about this.

Here is a chart I like to share. It includes four major economic studies of tax policy. The conclusions are obvious. Property taxes, in general, are the least harmful for economic growth and income taxes are the most harmful. Why Missouri would be severely limiting property taxes in many counties in a manner that will increase dependency on income taxes is beyond me. It may make for good politics. It is not good tax or economic policy.

Not all property taxes are the same, of course. Property taxes focused on the value of the land are the best, and we need to expand that (i.e., land taxation) in Missouri. Property taxes focused on homes and buildings are next best. Missouri makes heavy use of personal property taxes on cars, boats, etc., and those taxes on mobile assets are less beneficial and should be phased out. Finally, personal property taxes on business and farm equipment are harmful, and should be ended. (The final category makes up a very small part of the property tax base, so ending it would not be difficult.)

Future posts will discuss the constitutional problems with this bill, the harmful effects of favoring current homeowners over future homeowners, a discussion of Charles Tiebout and his theories, and more. For more information, please see my testimony from the special session, these policy studies on this issue of property taxes and assessments, and related commentaries.

The post Why the New Property Tax Rules in Missouri Are Bad, Part 1 appeared first on Show-Me Institute.

Our two biggest cities—the economic engines of the state—have failed to grow as well. The City of St. Louis is emptying out, dropping from 622,236 in 1970 to 301,578 in 2020, though the larger metropolitan area has absorbed much of that loss. Kansas City saw dramatic population drops in the 80s and 90s, though recent growth has brought us up to over 500,000 around where we were in 1970. (Even still, the Kansas suburbs have been growing at a much higher rate than the city proper for decades.)

U-Haul publishes a migration index each year. For 2024, Missouri ranked 28th for growth.

Where is everyone fleeing to? The largest beneficiary of Missourian departures is Kansas—which is not a surprise to those of us here in the eastern part of the state. Kansas’s suburbs offer better schools, seemingly better-maintained infrastructure, and lower crime. Second is Illinois, with Texas, Arkansas and Florida rounding out the top 5 destinations.

(Aside: Yes, Florida and Texas have better climates than Missouri, but so do plenty of other states. Florida and Texas also have no state income tax. The Tax Foundation reports that low-tax states saw greater population growth than high-tax states.)

Missouri’s portion of the national GDP is shrinking as well. We produced 2% of the nation’s GDP in 1997. Today we produce only 1.5%.

Missouri’s leaders, at the state and local level, must decide if they are satisfied with our slow and steady decline. If they aren’t, what are their plans to reverse it? It can’t be more of the same, where we have driven up housing costs through foolish energy policies, or failed to deliver basic public safety. It certainly cannot be a continuation of former Governor Mike Parson’s profligate spending.

The Show-Me Institute has some ideas, thank you for asking, and most of them are about helping Missourians by getting government out of the way of families, businesses and entrepreneurs.

Not everyone will agree with our proposals. That is fine. But every leader should be asked: if not these policies, then what is your plan for reversing Missouri’s glide path to oblivion?

The post Missouri is Shrinking appeared first on Show-Me Institute.

James V. Shuls speaks with Russell S. Sobel, Professor of Economics and Entrepreneurship at the Baker School of Business at The Citadel, about his latest paper, “Why Markets Matter for Human Progress & Prosperity.” They discuss how free markets drive innovation, prosperity, and human flourishing, the historical context of market-based economies, the pitfalls of government intervention, the long-term benefits of entrepreneurship and competition, and more.

Read the full paper here.

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Produced by Show-Me Opportunity

The post Why Markets Matter for Human Progress with Russell Sobel appeared first on Show-Me Institute.

Listen to a podcast about the paper here.

The post Why Markets Matter for Human Progress and Prosperity appeared first on Show-Me Institute.

Getting rid of the corporate income tax has many benefits, chief among them is raising Missouri’s GDP growth rate. Countless studies have found that corporate income taxes are economically harmful. Missouri ranks 26th in the United States for GDP growth, and eliminating this tax would make Missouri a more competitive, pro-growth state. While eliminating the corporate income tax would mean giving up the $900 million in revenues that the tax raised in 2023, some of the lost revenue would be offset by higher sales and personal income tax revenues owing to stronger economic growth. Moreover, the gradual nature of the phase-out would ease the transition.

Cutting the corporate income tax rate will also lead to business growth. A 2016 peer-reviewed article in the American Economic Review found that a 1% cut in a state’s corporate income tax rate leads to a 3–4% growth in the number of establishments over a 10-year period. The study found that a lower corporate tax is also good for increasing entrepreneurship. Missouri will become more attractive to both new and existing businesses with the elimination of the corporate income tax.

Another study found that a little more than half of the total incidence of corporate taxation falls on consumers through higher product prices, with capital owners bearing only 20% and workers bearing the remaining 28%. The Tax Foundation reports that, because corporate income taxes make it more expensive for businesses to invest in technology and equipment, eliminating the tax can increase efficiency which would generate higher revenue for companies. A tax cut will enable companies to not only increase wages but also create new jobs. If Missouri’s policymakers want to increase overall economic growth, HB 2274 is a step in the right direction.

The post House Voting on Corporate Income Taxes appeared first on Show-Me Institute.

My purpose here is simply to respond to one statement in the article by St. Louis’s Mayor Jones:

“I urge those who want to eliminate the earnings tax to show me their plan to replace it, their pro forma on these so-called ‘fiscal cliffs,’ and why cities with much higher earnings tax rates continue to grow,” Jones said in a statement.

I would like to remind people that, as for a plan to replace the earnings tax, the PFM Group out of Philadelphia has provided St. Louis with multiple, enormous reports on fiscal options for the city. Having read these studies, I assure you they go into great detail on these topics. If the city and its leaders aren’t serious about considering and incorporating these recommendations, among others, that’s on the city.

Do some cities with earnings taxes continue to grow? Of course they can. Some cities, like, say, New York City, have qualities and advantages that help them overcome the harms of local income taxes and continue to grow nevertheless. That shouldn’t surprise anyone, but it doesn’t mean local earnings (also known as income or wage) taxes don’t harm cities. Nobody is saying that a city can’t grow if it has an earnings tax. The claim—backed up by evidence—is that they would grow faster without one.

You don’t have to take our word for it (but you should). In Triumph of the City, Harvard economist Ed Glaeser states: “The indirect effect of a local income tax is to encourage richer citizens and businesses to leave.” He cited this study, in which the authors determined that, among other findings, “We estimate that between 1971 and 2001 Philadelphia lost 172,889 jobs because of the increase in city wage tax rates.” (Similar effects were found for New York City.)

It’s one thing to say the city is not in a position to immediately drop the earnings tax in one fell swoop. That’s a defensible position. It’s another to deny that it harms economic growth. That’s not defensible. The worst part, though, is watching the city enact legislation and pass constant tax subsidies that make it more dependent on the earnings tax, instead of trying to be less dependent on it over time. The city has chosen to put itself in this position, and that is regrettable.

The post Yes, Mayor Jones, the Earnings Tax Really Does Hinder Economic Growth appeared first on Show-Me Institute.

This report describes the current Missouri workforce, projects the condition of that workforce in 2040 barring a course correction, and examines potential policy fixes that could get the state’s workforce back on track. Click here to read the full report.

The post The Future of Missouri’s Workforce appeared first on Show-Me Institute.

My general position on taxation has always been about maximizing growth, and specifically moving from income taxes to the least destructive tax for growth—the property tax. That does not mean, however, that I am unaware of or unsympathetic to alternative considerations that could be reasonably offered.

• Property taxes are the least destructive tax for promoting growth, but other objectives beyond “growth” do enter the calculus for policymakers. Is it “fair” for a taxpayer who owns property to get a tax benefit, but not a taxpayer who rents? Are real property taxes problematic in the same way personal property taxes are, or are they completely different policy issues? Like most things in life, tax policy is not a one-dimensional issue; stipulating to that reality is appropriate, even as I support reforms that stoke growth, against possible alterative priorities.
• From a practical perspective, it also isn’t great if seniors on fixed incomes find themselves unable to make their property tax payments if a massive assessment adjustment, like what we’re seeing in Jackson County, makes staying in their longtime homes fiscally impossible.

All that said, cutting the state and local tax base to ribbons, whether on a permanent or temporary basis, is a precarious proposition precisely for the very reason David highlights: unless government spending falls as tax exceptions are made, the cost of government will inevitably fall to the rest of the taxpayers.

And speaking of . . .

Missourians shopping for school supplies, clothes and computers during the state’s tax-free weekend Aug. 4-6 can save up to 5% more than in previous years.

A 2021 Missouri law taking effect this year prevents all cities, counties and special tax districts from charging local sales taxes during the back-to-school weekend.

Tax holiday shoppers have been exempt from the state sales tax of 4.225% since 2004, but many municipalities still charged local sales taxes. With local sales taxes eliminated, this year, shoppers will save up to 9%.

I would love to say that the sales tax holiday for school supplies is a net good for the state and families, but as The Tax Foundation notes:

While sales tax holidays have been politically popular for a long time, they have seen a boost this year as lawmakers look for ways to share surplus funds with taxpayers who are struggling to afford goods and services amid high inflation. But however well-intended they may be, sales tax holidays remain the same as they always have been—ineffective and inefficient. [emphasis mine]

Sales tax holidays have been and always will be dubious tools for promoting reasonable public policy objectives—they simply shift consumer spending patterns instead of changing them and are often used to promote illusory economic development benefits. As with tax credits on income taxes and tax abatements on property taxes, carving up the sales tax base with “tax holidays” can have similarly unintended consequences, even if the policy is good politics and good intentioned. But as with the senior property tax carveout, even a good intentioned sales tax holiday is bad policy.

The post “Tax-Free Weekend” Underscores Importance of Sound, Stable and Uniform Tax Policies appeared first on Show-Me Institute.

Opportunity cost. The concept is so simple that a first-grader could understand it. I know, because I used to teach it to first-graders. Had you walked past my classroom at just the right time, you might have heard 20-something first graders chanting, “Opportunity cost is the opportunity lost.” The students understood that our decisions have consequences. It was a lesson they learned every time they went out to recess. If they chose to play kickball, they couldn’t play basketball. This basic life lesson bears some repeating for the adults who set policy in our state.

Though the term opportunity cost was not coined until 1914, French economist and writer Frédéric Bastiat provided one of the most salient examples of the concept in his 1850 work, “What Is Seen and What Is Not Seen.” Using the parable of the broken window, Bastiat explained how money being spent on one activity is money that cannot be put to more productive use elsewhere. Imagine that a pane of glass is broken at a baker’s shop. Obviously, the money that the baker must pay to have it repaired becomes revenue for the window repair man. Anyone walking by can see the repair man doing work and recognize that he’ll be paid for his labor. But it makes no sense to look at the repair man’s good fortune in isolation. Doing so would lead to the harebrained conclusion that breaking windows leads to economic growth! Instead we need to remember that, had the window stayed intact, the baker could have done something else productive with the money. The problem is that we can’t see what the baker could have done with the money—only what he actually did with it.

Unfortunately, our board of aldermen and other policymakers regularly make decisions based on what they see without accounting for what they can’t see. Take for example the earnings tax in Saint Louis. Policymakers can see the revenue generated by the tax, but they can’t see the economic activity that has been lost. They can’t see the jobs that might have been created had those dollars been reinvested by the businesses. Nor can they see the economic activity that might have been generated if those dollars had remained in workers’ pockets.

Think about opportunity cost the next time you see a ribbon-cutting at some new development that has received tax breaks or some other form of support from the government. Whether it is a property that has been blighted and given property tax abatements for development in the Central West End or a big box store that receives tax-increment financing, we can see the product of those government actions. We cannot see the harm they do to other businesses through unfair economic competition.

I was reminded of these ideas when I read Lindenwood economist Howard Wall’s most recent paper for the Show-Me Institute, “Is Growth in Outstate Missouri Tied to Growth in the Saint Louis and Kansas City Metro Areas?” Wall uses an econometric model known as Granger-causality to estimate the impact of employment growth in Saint Louis and Kansas City on the rest of the state. He finds a statistically significant downstream relationship between Saint Louis and the rest of Missouri. That is, employment growth in Saint Louis leads to employment growth in the state. He estimates that a 1 percentage point increase in growth in Saint Louis would lead to an increase of 0.35 percentage points in outstate Missouri within two or three years. Why this connection exists (he doesn’t find a similar relationship in Kansas City) is a matter for some hypothesizing or future research. Nevertheless, the point is clear—Saint Louis is an economic driver for the state.

While Wall’s paper does not deal directly with the idea of opportunity cost, his findings make it all the more important for policymakers to understand the importance of their actions. When they support an earnings tax or other policies that harm the city’s economic growth, they are hurting the economic growth of the entire state.

Missourians, not just those who live in the city, benefit from a thriving Saint Louis economy. That’s why we need policymakers to put in place pro-growth policies that create the economic conditions for the market to thrive.

The post Opportunities Squandered in St. Louis Affect All of Missouri appeared first on Show-Me Institute.

Using household employment data, Wall, a professor of economics at Lindenwood University, tests whether employment growth in the two major cities appears to cause employment growth throughout the rest of the state.

Interestingly, the data show a statistically significant relationship between growth in Saint Louis and outstate Missouri. For example, a one percentage point gain in employment in Saint Louis would lead to a half percentage point gain in outstate Missouri the following year and then smaller gains in the years after that. Wall did not find as strong of a relationship in Kansas City, though the results were not far from being statistically significant.

Why these findings occur is a matter that can be explored further, but the point is clear. Saint Louis and, to a lesser extent, Kansas City are economic drivers for the state. Missourians have a vested interest in seeing sound policies put in place to help these cities flourish.

Click here to read the full report.

The post Is Growth in Outstate Missouri Tied to Growth in the St. Louis and Kansas City Areas? appeared first on Show-Me Institute.

As I wrote about a few weeks ago, Missouri is also facing a demographic decline. Recent college graduates or businesses looking to relocate will be more likely to choose a state with a promising economic outlook. When I wrote about demographic decline in St. Louis, I mentioned that Austin, Texas, and Orlando, Florida, have experienced substantial growth. One likely reason for these cities’ success in attracting new residents is their lack of a local or state income tax, which serves as an incentive for businesses and individuals to move to those cities.

So what can policymakers do? Show-Me Institute analysts have written extensively about the benefits that an income-tax cut could have for Missouri. States such as Texas, Florida, and Tennessee have cut their income tax to zero and also consistently fare well in ALEC’s economic outlook and performance rankings.

While Missouri has made incremental progress on cutting taxes, we still lag behind the true national leaders. This year’s legislative session is almost over, and so far we haven’t seen any significant tax reforms become law. Lowering taxes could help both our economic and demographic woes. But we need more urgency from our elected officials on this issue, or Missouri will only continue to fall further behind.

The post Two Birds, One Stone: Could an Income Tax Cut Help Missouri Reverse Two Declines? appeared first on Show-Me Institute.

Not to be outdone, Laclede County officials have also decided to put a surtax reduction before voters. While the Laclede County rate is not as high as the Clay County rate, it is nonetheless very high and by far the highest among neighboring counties. Laclede County’s rate cut is also larger than Clay County’s. Laclede County officials are proposing to reduce the surtax from $1.03 per $100 of assessed valuation to $0.51. The key thing to remember is that the surtax does not roll back as assessed valuations increase, so over time as the local economy grows—and this tax cut should help it grow more—the rate remains the same and the tax revenue generated by it will increase. For the record, the $0.51 rate is right on average for Missouri counties. (Some are saying that the average rate is $1.02, but whoever calculated that clearly used a weighted average. The largest counties of St. Louis, Jackson, and Clay with their very high rates significantly alter the calculation. I think the unweighted average (mean: $0.53; median: $0.41) is preferable for comparing individual counties to each other, especially counties such as Laclede, which is economically competing more with Camden and Dallas counties than with St. Louis and Kansas City.)

The Lebanon R-3 school district is crying some wolf about the size of this rate cut. School officials claim the district will lose $275,000 per year from this; however, Lebanon R-3 is a large school district, and that figure is less than one percent of its total revenues. This is a district that received $4 million in federal stimulus funds alone last year and which is poised, like every Missouri taxing district, to soon see a significant increase in personal property tax revenues this year from the dramatic increase in used car values. The personal property tax windfall alone should make up for the potential loss of revenue from the surtax reduction, should the voters pass it.

This commercial property surtax cut should be a real benefit to economic growth and job growth in Laclede County, and it will be interesting to see what the voters decide.

The post Laclede County Proposes Its Own Tax Cut appeared first on Show-Me Institute.

Tax relief and reform alone won’t solve all of Missouri’s problems or immediately launch Missouri to the front of the pack in attracting talent and capital from around the country. We need better schools with more educational opportunities We need to reduce crime, especially with three of our major cities—St Louis, Kansas City, and Springfield—ranking distressingly high on national crime indices. But solving either, let alone both, of these problems is very complex and likely to require a multi-pronged approach as policymakers work to build consensus and tackle each element of the problem.

There are some things Missouri can never have—like Florida’s coastline (although the Lake of the Ozarks is plenty to brag about)—but implementing good tax policy is well within our grasp. Some would seek quick, superficial, and ultimately harmful “fixes,” like using subsidies or tax credits (subsidies by a different name) as handouts to lure large, well-connected companies to expand in Missouri, with no guarantee that any jobs they create would outlast the flow of taxpayer money. But history and research have undermined the claim that we can subsidize our way to prosperity or successfully pick winners and losers. One thing policymakers absolutely can do is create a better, more level playing field for families and small businesses with an income-tax cut that returns money to their pockets and reduces the penalty on hard work and investment.

Thankfully, Governor Parson and the General Assembly appear poised to pursue exactly that—rate reductions to Missouri’s income tax—in the upcoming special session of the legislature. Doing so would not only be welcome relief to Missourians suffering under decades-high inflation, but it would also be a great way to kickstart a bold tax-reform agenda to improve the economic prospects of every Missourian. Economic research has demonstrated that lower income-tax burdens encourage work, improve productivity, increase entrepreneurship, promote innovation, and attract people and firms from places with more punitive taxes. When we enable people to earn higher returns on their labor and investments, it should come as no surprise that we get more of both.

This isn’t theory or idle speculation. One only needs to look as far as neighboring Tennessee to see a state much like our own that has grown dramatically faster than Missouri in recent decades. One major reason for that growth is that Tennessee is one of nine states with no income tax, and its major cities do not have local income taxes. Greater economic growth is more than just a statistic. It’s more jobs and new businesses at places ranging from local mom-and-pop shops to modern tech start-ups—all driving up wages and creating ladders of opportunity. Growth benefits Missourians of all backgrounds, which is why we must seize on the opportunity to return power and money to the people through the kind of income-tax-rate reductions now being discussed.

Those who oppose these cuts look past the obvious success of Tennessee and Florida and instead bring up the specter of Kansas, which faced negative consequences in the years following its own major tax cuts. But not every tax cut is created alike, and prudent budgeting always demands running the math both on the revenues and spending sides, which is exactly what Missouri policymakers are doing carefully and seriously as they deliberate. By contrast, when Kansas cut taxes, it created a special zero percent rate for only certain forms of income (namely, LLCs, S-Corps, and other pass-through entities) and did not undertake other subsidy and spending reforms to ensure that the numbers would add up. Favoritism and bad arithmetic are bound to create problems. Not surprisingly, many businesses changed their structure to these newly tax-free entities, and Kansas state revenues fell. Kansas reduced the tax rate on pass-through income to zero, far below that of regular income. Not only did this change have little justification economically but it also greatly encouraged tax avoidance behavior through income reclassification

That is not the proposal under consideration in Missouri. Governor Parson and the legislative leadership are considering accelerating already-planned rate reductions by cutting the Missouri income tax rate from 5.3 percent to 4.8 percent—a move well justified by the enormous surge in revenues the state continues to experience. It would be even better for our state if Missouri were to push even further past 4.8 percent. The prudent course of action in that case would be to also pursue subsidy reductions and other tax and spending reforms to ensure the stability of Missouri finances for vital public services. State leadership is also considering increasing the standard deduction on state taxes, which would deliver further relief to working- and middle-class Missourians, removing some from the tax rolls entirely.

At a time of high inflation and labor shortages, putting Missouri on a faster growth track through pro-growth, pro-work, pro-investment income tax reductions could not be more appropriate. In the short term, having more money in their pockets will provide much-needed relief to struggling families and empower Missourians to achieve their dreams, whether this means saving for a house, starting a business, or donating to their communities. In the long run, taking an important step toward major tax reform signals that Missouri is open for business and no longer willing to cede ground to states like Tennessee, Florida, or Texas. If those states can attract investment and talent by rewarding hard work and entrepreneurship, then we can too.

However you measure it, Missouri has not been growing compared to other states. If the Governor and legislature succeed in passing some combination of tax rate reductions and other adjustments to our income-tax system, they will increase opportunities for all Missourians. That would be a legislative special session we could be proud of.

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An income tax cut is basically the gift of money. Taxpayers would get to keep more of their hard-earned money to spend or save in any way that they want. That means more opportunities for taxpayers and more money that can be spent at Missouri businesses. And it’s the gift that keeps on giving, because you’d get this “extra” money year after year.

This would not only be an individual gift, but also a gift to Missouri’s economy. Income taxes are destructive to growth and disincentivize working. For a number of reasons, Missouri’s economy would be better off if the state relied more on other forms of taxation for revenue.

In recent years, Missouri lawmakers have taken steps to lower the individual income tax. The “Wayfair” bill in 2021, for example, added a reduction of the top income tax rate by 0.1 percent in 2024 and two triggers to eventually lower the top rate to 4.8 percent. But it’s not time to take our foot off the gas. Other states (like North Carolina) are implementing tax cuts, and Missouri should follow suit to support taxpayers and stay competitive.

In the mass of pre-filed bills, I know of at least one that would reduce the income tax, but it’s difficult to predict what will happen in Jefferson City in 2022. If lawmakers really want to give taxpayers a gift (albeit a late gift, given the timing of the legislative session), they’ll consider further income tax cuts this session.

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At the beginning of the COVID-19 pandemic, Missouri temporarily relaxed and waived hundreds of regulations to both ease the burden on businesses and allow for an effective pandemic response. This led to an important question: If these regulations are not necessary during trying times, are they necessary during normal times? Do doctors and advanced practice registered nurses really need to be within 75 miles of each other to collaborate? Is it really necessary for certain licensed professionals to receive their continuing education in person at specified locations as opposed to virtually?

Regulations burden businesses and make it harder for workers to get and keep jobs. Red tape hurts our economy and stifles growth, so if a regulation truly isn’t necessary, it should be eliminated.

I’ve previously called for these waivers to be made permanent and it’s good to see some progress during the legislative session. No matter how trivial it may seem to allow to-go cocktails, the larger issue of eliminating unnecessary regulations is a serious one. Other states have already taken steps to eliminate regulations and promote economic growth. This is a small step, but hopefully Missouri will continue to recognize and eliminate harmful regulations.

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