As Missouri’s legislative session winds down, lawmakers took a major step toward eliminating the state’s individual income tax. Both chambers of the general assembly approved HJRs 173 and 174, a proposed constitutional amendment. Voters will now decide whether to authorize the legislature to begin the process of phasing out the income tax.

Here’s a short summary of what voter approval of the amendment would set in motion:

• Requires the general assembly to enact legislation reducing the state’s top individual income tax rate based on revenue growth until it is eliminated. Once eliminated, the tax could not be reinstated.
• Authorizes the general assembly to expand the sales and use tax base to include additional goods and services. Currently, Missouri’s constitution doesn’t allow sales and use taxes to be expanded to any service or transaction that wasn’t taxed on Jan. 1, 2015.
• Requires that any changes to state or local sales and use taxes that generate additional revenue be offset. At the state level, that revenue must be used to reduce the individual income tax rate. At the local level, governments receiving additional revenue must reduce one or more other local taxes by a commensurate amount, choosing from a specified list that includes earnings taxes, personal property taxes, real property taxes, or local sales and use taxes.

This move comes at a time when Missouri is struggling to keep pace nationally. As my colleagues and I have written about repeatedly, the state’s population growth has been flat, and economic growth ranks in the bottom half of the nation. And while Missouri has reduced its top income tax rate from 6 percent to 4.7 percent over the past decade, many neighboring states have moved faster. Across the country, states are enacting policies that make them more attractive in the competition for families, workers, and investment, and it’s clear that states with low or no income taxes are pulling ahead.

If Missouri wants to change that trajectory, its tax structure has to be part of the conversation.

As I wrote when I testified on the amendment, this proposal does not eliminate the income tax overnight or answer every question up front. What it would do is give the legislature clear authority to move in that direction if voters approve. That matters because any serious effort to phase out the income tax will, sooner rather than later, require a rethinking of the state’s tax structure, especially its outdated and broken sales tax system.

In that sense, the amendment is less about a single policy change and more about forcing decisions state officials have avoided for years. What is a fiscally responsible pace to phase out Missouri’s individual income tax, the state’s single largest source of revenue? How much faster could that process move if the state modernizes its sales tax base? How should the tax policy actions of surrounding states impact that timeline?

There will undoubtedly be difficult tradeoffs if voters approve the proposed amendment, but it’s important to recognize that they are unavoidable. Improving Missouri’s economic prospects will require decisive action and an acknowledgement that maintaining the status quo has produced slow growth and will leave the state further behind its peers.

There are real concerns about how a transition like this would work and who it would affect. Those details will matter, and they will be decided through the legislative process if voters approve the amendment.

With the legislature’s work complete, the remaining question is when voters will weigh in. Under Missouri law, the governor has until May 22 to determine whether the measure will appear on the August or November ballot. The timing of that vote will shape how quickly Missouri can begin addressing these questions and close the gap with states that are already ahead.

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The city of Herculaneum in Jefferson County is showing how use taxes can be properly added into the municipal revenue mix. A use tax is simply a sales tax on goods you purchase online (or through catalogs) and have delivered to your home. Many cities and counties have added them in recent years as online shopping has grown. Voters often approve them, but sometimes they say “no, thank you.”

Supporters of use taxes say they level the playing field between online purchases and actual stores from a cost perspective, along with raising revenue for local services. That is true, and I have generally been supportive of use tax expansion in recent years. Broadening the sales tax base is a good thing.

However, I have also called for cities and counties to offset the increased revenues from use taxes with cuts to other taxes (at least partly). That approach gives you the benefits of expanding the tax base, equalizing competition between types of retailers, and some increased tax revenues without giving local governments a windfall in tax money. Unfortunately, most local governments have shared my enthusiasm for the first three parts, but not the last one.

But Herculaneum is doing it the right way. Herculaneum has included in the ballot language for its use tax vote on April 7 that, if the use tax is passed, the city will reduce property taxes by ten percent to partly offset the new revenue collections. Regular readers will know that I support making property taxes the foundation of local government revenue, but that doesn’t mean I want high property taxes. If Herculaneum can expand its sales tax base while lowering its property tax rate for everyone, that is a reasonable trade-off for taxpayers and residents.

The post Herculaneum Is Doing Use Taxes Right appeared first on Show-Me Institute.

Patrick Tuohey and David Stokes join Zach Lawhorn to break down the key issues Missouri voters will decide on April 7th. They discuss whether local elections should stay in April or move to November, property tax limit votes happening in more than 90 counties, new fire district sales tax authority and what it means for taxpayers, the 1% earnings tax renewals in Kansas City and St. Louis, and Springfield’s convention center lodging tax returning to the ballot after voters already rejected it. They also discuss use taxes, senior property tax freezes, the economic development sales tax on the ballot in O’Fallon, and more.

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Produced by Show-Me Opportunity

The post Missouri’s April 7 Ballot Breakdown with David Stokes and Patrick Tuohey appeared first on Show-Me Institute.

Until 2025, fire protection districts in parts of Missouri—mostly rural areas—were allowed to impose a sales tax of up to one half of one percent within their district. In the 2025 legislative session, a bill was passed to give all fire districts the ability to impose a sales tax, and also increased the maximum tax to one percent. Have any Missouri fire districts (and the smaller ambulance districts) taken the opportunity to ask voters to approve this new or higher sales tax?

Of course they have. It seems like almost all of them, especially in the five urban counties where fire and ambulance district sales taxes were previously prohibited.

Property taxes were how fire districts were entirely funded in those five urban counties. The rest of the districts also primarily relied on property taxes where the sales tax was limited to one half of one percent. That is apparently going to change. It shouldn’t. Fire protection literally protects your property, and should be paid for as such, through property taxes.

But of course, fire districts (and municipal fire departments) don’t actually fight many fires anymore. They answer medical calls and respond to car accidents, which are not so closely tied to one’s property. Here is a chart from Marginal Revolution.

If a higher sales taxes pass, the fire districts are required to reduce their property taxes by an amount equal to half of the new sales tax collections. That’s nice, I guess, but it still means a substantial increase in funds for the fire districts. Fire districts will have to justify all the new spending, which they will mostly do by continuing to send the full fire truck out for a huge number of calls that don’t require a fully staffed fire truck. While this chart and the prior one end in 2010, the changes they noted since 1985 have not reversed in the past 15 years. The number of annual fires has leveled off, simply because it gets harder to reduce something once it has declined dramatically (which is wonderful). The number of career firefighters has continued to increase, reaching 364,000 by 2020.

Fire districts, particularly the larger ones in suburban areas, are often controlled by fireman’s unions. They get their allies elected in low-turnout April elections. Yes, the fire district officials care about public safety. Nobody disputes that. But they are often intensely focused on increasing pay and pension benefits for their members. Unlike city officials who have to fund a municipal fire department along with many other city departments under an umbrella of citywide tax revenues, fire district officials only care about their fire district. They don’t have to put funding into a bigger picture. They just want to maximize funds for the district.

Everyone wants quality fire protection, and firemen certainly deserve good pay and quality benefits. But taxpayers can’t afford to maintain the very generous benefits as is, and expanding the tax base for fire districts by allowing more and higher sales taxes is likely going to end up increasing those salary and benefits substantially. Will it lead to better public safety for the people of Missouri? Maybe. Will it lead to much higher local spending? Definitely.

The post Fire District Sales Taxes appeared first on Show-Me Institute.

In his January 30 op-ed for the Post-Dispatch, Kansas political scientist Michael Smith called Governor Mike Kehoe’s proposal to cut income taxes in Missouri a “near carbon copy” of Governor Sam Brownback’s 2012 income tax cuts in Kansas.

But Kehoe’s proposal for Missouri has large and important differences from Brownback’s. It isn’t a “carbon copy” at all.

The single largest flaw in Brownback’s tax cut was a peculiar change that eliminated all income taxes on “pass-through” business entities such as limited liability corporations (LLCs) without changing the tax code for other types of businesses. Even the right-leaning Tax Foundation criticized the provision at the time. Put simply, it didn’t encourage investment; it ended income taxes for one type of business while keeping them for others.

Not surprisingly, many businesses changed their corporate structure to suddenly become pass-through entities. The Tax Foundation found that over 390,000 entities claimed the exemption by 2015, more than double what was projected. These businesses didn’t invest in the state, hire more workers, or do anything other than change their legal status. Tax revenues declined significantly, and little growth followed.

Kansas also made critical mistakes in how it implemented income-tax cuts. The state slashed its top income-tax rate by nearly 30 percent immediately in 2012, with plans to cut even further. At the same time, Kansas’s elected officials failed to rein in spending. The combination of the pass-through exemption, immediate and deep rate cuts, and lack of spending discipline during this period fostered a fiscal crisis that could have been avoided. Even worse, the timing of these actions gave the state little room to adjust when projections weren’t borne out.

Kehoe’s proposal is fundamentally different. It asks Missouri voters whether they want to eliminate the income tax. If they do, the state can then expand and adjust its sales tax to replace the lost revenue. While many details remain to be finalized (and Missourians have every right to be skeptical while awaiting those details), the plan ensures that income tax rates can only be lowered after meeting revenue benchmarks, meaning Missouri would only cut taxes when it has the fiscal capacity to do so.

Setting aside the phasing out of the income tax, addressing Missouri’s outdated sales tax system is long overdue. While states nationwide are broadening what they tax, Missouri’s system remains narrow, with much of what is sold today escaping taxation entirely. Larger exemptions like home sales and healthcare services might make sense, but other current exemptions clearly don’t.

When you buy a book in person at Barnes & Noble or have the same book delivered to your house by Amazon, you pay the sales tax. However, when you buy the same text as a download to your Kindle, you pay no sales tax. Correcting such inconsistencies in Missouri’s tax code can level the playing field while expanding the sales tax base at the same time.

Opponents can point to Missouri’s western border all they want, but Missouri has other neighbors besides Kansas. Look at Iowa, Oklahoma, and Arkansas, which have all cut income tax rates significantly in recent years without any of the issues Kansas had. Look to our southeast border to see Tennessee, a state that has been growing rapidly for years thanks, in part, to having no state income tax. This isn’t surprising, as decades of economic research have shown consistently that states without income taxes grow faster economically than those with them.

As the Tax Foundation, which was highly critical of Kansas’ tax cut, wrote in 2024 about the larger picture of state tax cuts between 2012 and 2022:

In fact, far from tax cuts precipitating a Kansas-like crisis, tax collections have risen more on average in the past decade in the 25 states that cut income taxes (31.9 percent in inflation-adjusted terms) than in the four states and D.C. that raised them (27.8 percent).

The lesson from Kansas isn’t that eliminating the income tax is a bad idea, it’s that implementation matters. There’s no doubt that states without income taxes are growing faster than Missouri, and our state needs a new approach to keep pace in the national competition for families and businesses. Voters deserve the full picture, not an overly simplistic “Kansas” bogeyman, when debating our state’s tax future.

The post Missouri Doesn’t Have To Be Kansas appeared first on Show-Me Institute.

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In Kansas, Sales Tax and Revenue (STAR) bonds are a state-level form of tax-increment financing, similar to taxing districts created by municipalities in Missouri. The state issues bonds to pay for development costs and then repays that debt using only the additional state sales taxes generated inside the project district. The claim is that the project’s shoppers—not general taxpayers—will cover the cost.

The sheer size of the STAR bond being considered for the Chiefs is staggering, and Kansas leaders will likely need to be creative to satisfy the risk being taken by potential bond buyers. I don’t envy them in that task.

The tax question is another issue. The STAR bond will determine the base year of sales tax revenue. You might assume that the base year would be 2025 or 2026, but it could conceivably be 2020 or 2015. But whatever the year, once that dollar figure is determined, everything collected anywhere in the approximately 300-mile district in excess of that dollar figure will be dedicated to pay for the Chiefs’ projects for 30 years. Mind you, the cost of delivering public services will continue to rise due to inflation or, say, due to huge infrastructure projects developed to support the stadium. But the sales tax revenue to pay for those needs is frozen at the base year level.

What then happens?

In Missouri we got the answer in 2016. Due to Kansas City’s profligate subsidy culture, property tax revenue, which libraries depend on, was flat. And so the Mid-Continent Library system sought an increase in property taxes. In doing so, the library observed:

[T]ax incentives and abatements by local government have impacted the revenue that would generally result from the growth of the Library’s tax base. The Library’s budget has been essentially flat for the past 8 years.

Advocates of subsidies often argue that they are free, because they are paid for with funds that wouldn’t exist anyway. This is exactly the argument Kansas Governor Laura Kelly makes ad nauseam. But as we learned in Missouri, that just isn’t true.

Kansans might not see tax increases going to the Chiefs’ project, but they are very likely to see tax increases because of the Chiefs’ project.

The post Kansas’s Coming STAR Bond Tax appeared first on Show-Me Institute.

David Stokes, Elias Tsapelas, and Avery Frank join Zach Lawhorn to discuss local ballot measures in Missouri, including new hotel taxes in Springfield and Jefferson City, municipal use and gas taxes, how the ongoing federal shutdown could jeopardize food stamp benefits for hundreds of thousands of Missourians and what the federal Rural Health Transformation Fund means for reform, and emerging ideas in energy policy such as consumer regulated electricity and the debate over data center development in Missouri.

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Timestamps

00:00 Election Season Insights
04:57 Convention Center Controversies
09:09 Understanding Use Taxes
13:32 State Budget and SNAP Challenges
16:12 Rural Health Transformation Fund
21:59 Energy Prices and Consumer Regulation
27:21 Data Centers: Economic Growth vs. Local Concerns

Produced by Show-Me Opportunity

The post Election Day Preview, SNAP Shortfalls, and Missouri’s Data Center Debate | Roundtable appeared first on Show-Me Institute.

The most interesting tax issue on the Harrisonville ballot is a local gas tax. Local gas taxes are a little-used option for funding roads for municipalities. Harrisonville would be the eighth city in Missouri to enact such a tax for its roads, according to Show-Me Institute research. Not surprisingly, many of these municipalities are located along major highways where people frequently stop for gas. In the same way that Prussia was called “an army with a country,” Foristell and Matthews could be considered truck stops with their own cities.

Local gas taxes require a 60 percent threshold for voter approval. The funds raised by the tax can only be spent on roads within the city. Obviously, getting 60 percent of the vote for any new tax is difficult, and that is likely one reason local gas taxes are so rare. Foristell, for example, needed multiple attempts before voters approved its gas tax.

Funding roads with user taxes like a gas tax is good public policy, and this includes local roads. It is smart policy to connect the cost of driving with the act of driving as much as possible. When you pay for roads with unrelated taxes, such as a property tax, a general transportation sales tax, or a targeted transportation development district (TDD) sales tax (which sounds like a transportation tax but is often just a form of corporate welfare), you subsidize increased driving by lowering the relative cost of driving.

As electric vehicles become more common, adjustments to the gas tax system will have to be made. But in the short term, more cities should consider adopting very low gas taxes in order to fund local roads. This table has more information on the local gas taxes implemented by Missouri cities:

While not every municipality can raise hundreds of thousands of dollars a year, it is worth considering in any municipality with a gas station. Similarly, the state should consider lowering the threshold for voter approval of local gas taxes to the standard 50 percent plus one.

The other two taxes and bonds being considered are much less beneficial. Harrisonville already has a local sales tax rate of 2.375%, and it is asking voters to raise it another 0.25%. However, the ballot wording is very confusing. The ballot says, “Shall the city of Harrisonville, Missouri impose a city sales tax of one and one quarter of a percent?” That would seemingly indicate a tax increase of 1.25%. However, the city website says it is only a 0.25% increase, leading to a total tax of 1.25%. But that conflicts with the other city website (link above), which lists the city sales tax at 2.375%. It may be that the city general sales tax is being increased, but then the city is clearly misleading voters as to the current sales tax rate by saying it is just 1% when it is 2.375%.

This sales tax rate increase is particularly high considering that Harrisonville also levies a moderately high property tax rate. Other cities with extremely high sales taxes tend to have very low property tax rates, such as Ashland. Whether they want the tax increase or not, Harrisonville residents should know they are living in a city with very high total municipal taxes. In particular, Harrisonville should remove some of its 1% TDD sales taxes, which would make its local sales tax almost 5%, if voters approve the tax increase.

Finally, voters are being asked to approve a bond issue for the Harrisonville municipal water and sewer system. This blog post is long enough, but suffice it to say residents of Harrisonville would be better served by privatizing their municipal utilities instead of continuing to go further into debt for them.

The post Harrisonville Goes for a Local Gas Tax appeared first on Show-Me Institute.

One thing I noticed about all the cities that I listed is that they contain lots of “U’s” and “L’s,” so I guess we know who the patron saint of this blog post is.

A use tax is simply a sales tax imposed on goods you purchase online or via catalogue and have delivered to your home. Municipal use taxes in Missouri actually predate the internet, but not surprisingly, most cities didn’t pass them until online shopping took off over the past fifteen years or so.

I am generally unsympathetic to the idea that these cities need a tax increase. If Creve Coeur needs more tax revenue, why did it just pass an enormous tax abatement in a very prosperous area that absolutely does not need tax subsidies to encourage development? If Festus needs more tax revenue, why did it put the fix in to sell its water system to another public entity without going out for bids as good government principles require? I don’t have any specific criticisms of Ladue, but I highly doubt the city is in financial trouble. This famous doggerel about Boston Brahmins could easily have been written about Ladue:

And this is good old Boston,
The home of the bean and the cod,
Where the Lowells speak only to Cabots,
And the Cabots speak only to God.

My view is that use taxes are a good way to expand the tax base, level the playing field for businesses, and raise local revenues. However, this last point is key. They should not be used simply as a way for cities to get more revenue. Cutting other taxes after the use tax is imposed (should voters pass it)—especially if you have a particularly harmful tax — is a great way to achieve the above benefits without a tax windfall for the city. Cities can lower their property tax rates, reduce their utility tax rates, or adjust other sales taxes (altering sales tax rates is much trickier than other types of taxes).

I don’t know if any of these cities have pledged to reduce other taxes if the use tax passes. Without such a pledge, the use tax would likely be a significant revenue gain for the city. If you think your city, town, or village actually needs that revenue, then so be it. But I’d be hard-pressed to buy that for the cities listed above, especially Ladue, Creve Coeur, and Festus.

The post Use Taxes on the Ballot in Missouri This November appeared first on Show-Me Institute.

Almost certainly. (And I’m only adding the “almost” because it is being litigated over and you never know how it will turn out.)

This isn’t the first time grocery stores have been targeted by special taxing districts simply because developers want the significant money they generate. In Wentzville, a Schnucks store was forcibly included in a CID that was used to help fund a Walmart development. If that sounds insane, it is. One grocery company, Schnucks, was forced to levy a special tax against its will to benefit one of its main competitors.

In St. Louis, an existing CID board tried to expand the CID’s boundaries to include another  Schnucks, primarily to get access to all of the money it generated. Schnucks opposed that one, too, and good for the company. As the company explained in a letter to elected officials:

It is our position that addressing the problem goes beyond additional cleaning, and we would encourage the City to tap into funds available to address these issues, rather than institute an additional tax on citizens who are buying their needed groceries for their families.

Grocery stores are not large ATMs with food in them that special taxing districts can extort whenever they feel like it. Good for Hy-Vee for fighting back in Lee’s Summit, and good for Schnucks to have opposed these ideas previously. Special taxing districts like CIDs and TDDs are, in the vast majority of cases, nothing more than vehicles for corporate welfare. They are bad enough even when all the property owners agree. But compelling grocery chains to participate in them against the will of the stores is just the sour cherry on top.

The post Hy-Vee Wants to Give the Heave-Ho to a CID appeared first on Show-Me Institute.

Port districts exist, in theory, to build and manage port facilities along rivers. When they actually focus on that job, I have no complaints. But in reality, many of the port districts are focused on other things, such as granting tax subsidies or engaging in government corruption. (The latter is less common, thankfully.)

The City of St. Louis’s port authority legitimately operates port facilities along the Mississippi. However, it is also substantially engaged in the granting of tax subsidies, usually for businesses that have absolutely nothing to do with rivers or shipping. For example, the port authority passed a one-cent special “port” sales tax for the St. Louis soccer team to be charged at the soccer stadium that the team gets to keep for its own purposes. (The soccer team has stated that it will use those funds to fix groundwater issues, so I guess it’s at least related to water.)

That was the city’s first “port” sales tax. Now there is a hotel, retail, and condo redevelopment downtown that also wants in on the game. The Jefferson Arms redevelopment has also requested a “port” sales tax of one percent. This is on top of the tax-increment financing subsidy it has already received, as well as the state and federal historic tax credits it got, and the community improvement district and transportation development district extra sales taxes it has applied for and will likely receive. Could it be that the developer wants to socialize the risk and cost, while privatizing the profit?

But a strange thing happened when the developer and its consultants tried to get the sales tax approved by the port authority. The port board said, “Wait, not just yet.” (Trust me, I wish I could say it said “no,” but the vote was tabled, not defeated.)

As Commissioner William Kay Jr. noted at the hearing: “If all three districts are approved, the Jefferson Arms building would have the highest sales tax rate in the city at 12.67%. We’ve got the CID, we’ve got the TDD—the tax rate right now will be 11.67%,” Kay said. “That’s the high mark for the city. I do not think the port authority needs to get into the business of subsidizing these projects.”

Let me reiterate: the Jefferson Arms project has nothing to do with a port. The use of port authorities to create one more tax subsidy opportunity in St. Louis, Kansas City, or anywhere else is terrible public policy. It’s great to see one agency say “not yet.” Hopefully, that “not yet” becomes a “no” in the future, both for this instance and many other subsidy proposals around the state.

Furthermore, the state legislature should remove the ability of port districts to issue tax subsidies or institute new sales taxes. Ports should be funded with user fees to the largest extent possible, and should not be another tool in the corporate welfare toolbox.

The post Denied Entrance at the Port of Call appeared first on Show-Me Institute.

This brings us to the recent Missouri Supreme Court ruling on whether or not counties can collect the sales tax on marijuana in incorporated parts of a county. The court ruled that counties can only collect the tax in the unincorporated parts of a county. This is what the state constitutional amendment said, so in that respect the court’s decision makes sense. However, the way the constitutional amendment was written had a different definition of “local government” than was previously used and generally understood in Missouri. Do you think most (or any) voters read to page 19 of a 38-page ballot description to see that, in this case, the definition of a county only applied to unincorporated areas?

Longtime former Missouri State Senator Clifford Jones used to say (I’m paraphrasing here), “You can pass any bill you want. Just let me write the definitions.” That is what the ruling by the Supreme Court is rewarding, and perhaps it had no other choice in the matter. We let initiative petition writers create a major change regarding how local governments operate, which very few people will see or understand, and then that change becomes law.

To be clear, county taxes are almost always collected countywide, not just within unincorporated areas. Yes, there are a few other exceptions, such as utility taxes, but that doesn’t justify initiative petition writers using obscurity as their ally, as in this case. (I am not disputing that a majority of Missourians wanted legalized marijuana. My concern is with the use of legal minutiae in initiative petitions to get other changes made at the same time.)

Missouri needs to reform initiative petition rules to make amending the Constitution more difficult. (In a future post, I will go into more detail about the specific reforms we need.) Otherwise, we will be subject to more well-funded, out-of-state efforts to change Missouri laws using seemingly popular ideas as cover for making major legal changes via obscure and unread ballot language. Did you read the 38-page document that accompanied the marijuana vote and described all of the legal changes? I doubt it.

Robert Moses would be proud of efforts to get what you want by secrecy. We are a republic, not a direct democracy, and we should act like it. Missouri needs initiative petition reforms.

The post “Just Let Me Write the Definitions” appeared first on Show-Me Institute.

Taxes are going down, right? That’s a good thing, right? My answers are “yes,” and a hesitant “maybe?”

I like low taxes, but I like low taxes evenly spread out for everyone. How we tax is almost as important as how much we tax. Whether they are income, property, or sales taxes, and whether they are at the national, state, or local government level, too often lately we are cutting taxes for some people in some instances for some things. These highly targeted cuts might work out overall, but often they are done because they make good politics, not good public policy. Taxes should be broadly based for several reasons, including fairness, certainty, and administrative ease. This is the opposite of what is happening.

Congress seems likely to pass changes to federal income tax rules that would exempt income from tips and overtime from taxation. This is absurd. The airport skycap who works a 50-hour week should be admired for his hard work, but his tax treatment should not be any different from that of the woman processing tickets behind the airline counter for 40 hours per week. This proposal treats things that are, essentially the same—regular, tipped, and overtime wages—as entirely different things for taxes. That’s a dangerous road to travel.

Staying in the same realm, one of the most hotly contested items in the ongoing federal tax debate is whether to raise the state and local tax (SALT) deduction. Currently, the SALT cap is $10,000 per household. This means that you can deduct state income taxes, local property taxes, etc., up to $10,000 from your federal income taxes. Currently, congressmen from higher-tax states are fighting to significantly increase the SALT deduction cap. The latest number is $40,000. That means that high-tax states would be able to continue increasing taxes knowing that their taxpayers would in part be subsidized by other federal taxpayers. California (or any high-tax state) would get to keep the tax money, and Missouri taxpayers would get to subsidize California taxes. This is preposterous.

The same things are happening locally in Missouri. A few years ago, legislation was passed allowing counties to freeze the property taxes of senior citizens. Scores of counties in Missouri have since done so. As a result, the wealthiest sector of the population gets its property taxes frozen upon turning 62. Younger families working and raising kids will see their taxes continue to rise, and those taxes will almost certainly rise more than they otherwise would have without the senior tax freeze. This is insane.

Another example includes Missouri’s sales tax rules. The legislature passed a law removing sales taxes from diapers and feminine hygiene products. We can all sympathize with the aim here. But adding more products to the sales tax exemption list will increase pressure to raise sales tax rates (or institute entirely new sales taxes) on the other products that are still taxed. Your diapers will have cost less due to reduced taxes, but your infant’s clothes will cost a little more with the new sales taxes on them.

Each of these targeted tax changes will have unseen, harmful effects. High-tax states will continue to get away with tax increases if the SALT deduction is raised. More workers will see their pay come via high-pressure “tips” instead of typical wages. Seniors will avoid beneficial downsizing simply for tax purposes. As fewer goods are subject to regular sales taxes, new special taxing district sales taxes will be added onto everything else. These targeted taxes will likely succeed for purposes of short-term politics, but they are going to fail by any longer-term fiscal measure.

Is there anything going right with tax policy? Sure. Keeping the federal tax rates from rising by passing those parts of the “big, beautiful bill” will benefit everyone, although the entire plan needs further spending cuts. In Missouri, the state income tax rate has been steadily coming down for everyone over the past decade as revenue targets are hit. Finally, the sales tax base has been broadened by taxing online sales and legal marijuana in the past few years. All of those moves are consistent with good tax policy.

If you are a wealthy California homeowner over 62 who still works for tips on overtime while buying diapers online for your Missouri grandkids, you may benefit from all of these changes. But if you are like most people you will benefit from maybe one while being hurt by the others. Of course, the one you benefit from will be clear and obvious, while the multiple ways you are harmed will be small and harder to detect. You will think you’re a winner in this game of tax politics. But in reality, you won’t be, and neither will the government’s fiscal condition.

The post The Wrong Direction on Tax Policy appeared first on Show-Me Institute.

The post The Three-Legged Stool of Taxes with David Stokes appeared first on Show-Me Institute.

A Free-Market Guide for Missouri Municipalities is a multi-part series by David Stokes, director of municipal policy at the Show-Me Institute, offering practical, free market–oriented reforms for improving local government across the state. Each installment focuses on a core area of municipal policy—combining real-world examples, historical  context, and academic research to help cities, towns, and villages better serve residents and taxpayers.

The second installment, A Free-Market Guide for Missouri Municipalities, Part Two: Taxation, examines the sources of municipal revenue in Missouri and evaluates the state’s heavy reliance on sales and income taxes. It makes the case for rebalancing local finance by placing greater emphasis on growth-oriented taxes like property taxes and more targeted sources such as user fees, while reducing reliance on volatile and distortionary taxes. Topics include land taxes, special taxing districts, user fees, local gas taxes, and the economic consequences of tax subsidies like TIF. The report offers practical recommendations to make local tax systems more stable, transparent, and conducive to long-term prosperity.

The post A Free-Market Guide for Missouri Municipalities, Part Two: Taxation appeared first on Show-Me Institute.

The measure passed, but the Platte County Commission voted unanimously not to implement the tax. The governing Missouri statute seems pretty clear, stating, “The governing body of a city not within a county, or any county of this state may, after voter approval under this section, levy a sales tax . . .” The commissioners argued the law gives them the discretion to levy the tax after a vote of the people (“may”) rather than require it (“shall”).

KCPBS’s “Week in Review” discussed the matter on February 28, and I pointed out that the commission’s position seemed strong. KCUR’s Brian Ellison argued the case was not as clear cut as I suggested.

Yet the day after a hearing on March 31, a circuit judge in Platte County agreed with the commission, issuing a decision immediately. The ruling concludes, “The plain language of §67.1775 gives the Commission discretion to levy or not levy the tax after voter approval.” Clear cut indeed.

Lastly, let me highlight one of the prescient arguments David put forward in September:

The two charitable agencies that gathered these petition signatures and are supporting this tax do great work for kids. Those two agencies, Synergy Services and Beacon Mental Health, are also going to benefit from this tax, and will almost certainly seek grants from it. (Both agencies have received funding from the Jackson or Clay county children’s services funds.) There is nothing wrong with that, but let’s not pretend that these charities have no self-interest in this process.

If we look to the last page of the October 28 Missouri Ethics Commission filing from the committee supporting the sales tax in Platte County, we can see that three charities contributed $13,000 to the YES campaign. David was correct—this effort incentivized Beacon Mental Health and other non-profits (Synergy Services seemingly did not donate to this campaign) to steer some of their valuable dollars to a political campaign, something we see too much of already. We should not be encouraging more of this.

The commissioners were right to oppose the sales tax. Platte Countians, regardless of how they voted on this matter, should be grateful for the commission’s willingness to make a stand against higher taxes and politicizing charities.

The post Platte County Commission Decision Not to Levy Taxes Upheld in Court appeared first on Show-Me Institute.

When the Emperor was trying to convince Anakin Skywalker to come over to his side in a regional political dispute, he famously told him, “I can feel your anger. It gives you focus. Makes you stronger.” Right now, we could use some of that well-focused anger when deciding on local tax increases in Missouri.

I get it. People hate property taxes. That’s not just conventional political wisdom—there are actually data to back that up. In one poll, 69% of respondents said their local property tax was too high, and 59% said it was unfair. In another poll taken regularly through the years comparing Americans’ views on taxes, the property tax was historically the least-popular tax. However, in the most recent poll (2023), the federal income tax (34%) edged out the local property tax (29%) as the “worst tax.” If you are almost as unpopular as the most hated tax, you are very unpopular. But the property tax does not deserve such contempt.

Other than a small cadre of hard-core political leftists, nobody really “likes” taxes, thankfully. People should be ambivalent about parting with their own money. They should want to get value for their tax dollars and expect that they be spent effectively. Most of all, they should be hesitant to pay higher taxes just because politicians want them to.

Not surprisingly, people like to tax other people more than they like to tax themselves. Because of our Hancock Amendment, residents get to vote on almost all tax increases in Missouri. I have closely followed hundreds of local tax increase campaigns around the state, and every campaign for a new sales tax, new hotel tax, or earnings tax renewal follows the same playbook. “With this tax increase, we can make sure those shoppers/tourists/commuters (pick one)  pay their fair share.” Convincing voters that other people are going to help fund their new service is a great way to get voters to fund what the government wants and not what the people need. Voters are more discerning on property tax increases because they know they are going to pay for it, and that’s a good thing.

Municipalities in Missouri depend less on property tax revenues than cities in any other state. That fact would probably surprise many readers. Cities depend heavily on various sales taxes, and our two largest cities depend primarily on local income taxes that also apply to nonresidents. The local governments that depend entirely on property taxes do so because they have no other choice under state law. Trust me, if they had a choice, every school district in the state would be operating a new casino with its own special sales tax right next to the high school.

All taxes impact economic growth. Poorly constructed tax systems that waste money on ineffective projects or corruption are bad for growth. Well-constructed systems that efficiently fund important public needs are good for growth. The trick is to get more of the latter and less of the former. The property tax goes to the local services that people see and use every day. When those services are well run, the tax is capitalized into higher home values, which everyone wants except at tax time. When those local services are poorly run, it hurts the value of your home, which everyone hates (also except at tax time). While any tax can be harmful if set too high, economic research indicates that local property taxes at reasonable levels harm economic growth less than other taxes, particularly destructive local income taxes.

If a local city or school district isn’t providing the services you want for the taxes you are expected to pay, it isn’t that hard to move to a different community. Families move for better school districts all the time. Older people regularly downsize to smaller homes with the resulting lower taxes and, often, within lower-performing school districts (e.g., The Gatesworth in University City). Variances in services and quality in a property tax system give people options to choose what is best for them and their families at different points in their lives. (The senior citizen property tax freezes expanding around the state remove that pressure in a contrived way that hurts communities just as much as it may help individual seniors.)

None of this is to say that the property tax system in Missouri doesn’t need reform. It’s a two-part system: assessments and taxes, and the assessment part definitely needs improvement. Electing the assessors in Jackson County and the City of St. Louis is a good place to start. Agricultural property taxes are all out of whack. The taxes on farmland are too low, while the taxes on grain, livestock, and farm equipment are absurdly inefficient. Local governments probably spend more money calculating the livestock taxes than they receive by collecting them. Business property taxes need reforms to protect commercial property from the same flaws of sales, hotel, and earnings taxes: voters targeting businesses to fund services that primarily benefit residents.

Why do people have a particular disdain for property taxes? Perhaps it’s because it’s the only tax many people pay all at once, so it seems to hurt more. Perhaps people buy into the silly argument that you never really own property if you pay a tax on it. Whatever it is, the fact that people dislike the property tax means voters are more careful about approving property tax hikes than other types of tax increases. As a result, governments need to make stronger arguments and show results to justify property taxes in the first place. The “focused anger” of voters, to paraphrase the Emperor again, is precisely why cities and counties in Missouri should depend more on property taxes, not less.

Hopefully, though, we will stop short of going fully over to the dark side. I can’t even imagine how high the taxes on a fully operational Death Star would be.

The post Everyone Hates Property Taxes, Which Is Why We Should Depend on Them More appeared first on Show-Me Institute.

TDDs are often abused by private developers as a means to expand corporate welfare under the pretext of “infrastructure improvements.” Most TDDs are created simply by the signatures of the property owners (often just one developer) who want to establish them. The TDDs are then governed by a board (affiliated with the property owner) that treats the tax funds as private money rather than public tax dollars. Missouri state auditors have consistently documented problems with TDDs for the past two decades.

Kirkwood city leaders deserve credit for putting this TDD to a vote of the entire city. They also made the right choice by ensuring that city leaders will have primary control of the future funds. Kirkwood residents can be confident that the taxes raised would be properly accounted for and spent on public needs, not private wants.

The main argument against this TDD is that sales taxes are not, generally speaking, the preferred way to fund transportation projects. Kirkwood should consider a local gas tax (which is allowed, yet admittedly rare in Missouri) before it commits to a sales tax for its roads. And, while nobody wants to hear it, property taxes are a better way to fund sidewalks in a community. General sales taxes are a way to push local costs onto visitors instead of having local people pay for the public services in their own neighborhoods.

Kirkwood voters face a tough decision tomorrow, but whatever the result of the vote, residents will benefit because the most harmful aspects of TDDs have been properly addressed by the city.

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