As a recent op-ed in the Wall Street Journal reports, high-tax states continue to bleed residents and income. Between 2022 and 2023, California lost a net $11.9 billion in adjusted gross income (AGI), New York $9.9 billion, and Illinois $6 billion. Higher earners with income over $200,000 drove much of this exodus. In Massachusetts, they accounted for 70% of outflows, doubling the 2019 share.

Meanwhile, no-income-tax states saw the largest gains. Florida added $20.6 billion in AGI, Texas $5.5 billion, and Tennessee $2.8 billion. Even non-income tax states with more frigid climes saw significant inflows, including Wyoming and South Dakota. In short, states without income taxes dominated the top destinations for both people and wealth.

Missouri, with its current 4.7% top individual income tax rate, sits in the middle of the pack. While we are not a major loser like California or New York, we are far from the magnet status of Florida or Tennessee. Drawing upon IRS migration data, past Show-Me Institute reports have shown that Missouri has consistently lost more people and more income than it gained. This has been particularly the case among working-age and higher-earning households seeking better economic climates.

These national migration patterns emerge at a pivotal moment for Missouri. State lawmakers recently approved HJRs 173 and 174, a proposed constitutional amendment backed by Governor Mike Kehoe that would ask voters to authorize the gradual phaseout of the state’s individual income tax. If approved, the general assembly would begin reducing the tax as revenues grow and would have the authority to speed up the process while modernizing Missouri’s outdated sales tax code.

Eliminating the income tax would align Missouri with proven winners in the migration data, making our state far more attractive to high earners, businesses, and young professionals—key drivers of growth. Moreover, we sit right next door to Illinois, which, while losing top earners at a breakneck pace, is also ranked the least friendly state for middle-class earners according to one report.

The pattern is clear. People and capital continue to flow to states with lower tax burdens and pro-growth policies. Missouri has the chance to join those states. By modernizing our tax code now, we can shut off the outflow of the past and build a more prosperous future.

The post Missouri’s Opportunity to Attract Talent: Latest IRS Data on “Voting with Their Feet” appeared first on Show-Me Institute.

Last week in The Kansas City Star, I argued the earnings tax is harmful. The responses suggest the Show-Me Institute is winning the argument, regardless of the vote’s outcome. What’s striking is that even those who acknowledge the tax’s flaws remain unwilling to act on their supposed principles. (St. Louis will also be voting on the earnings tax.)

I argued that the tax is regressive, drives workers and businesses away, and fuels the city’s subsidy culture.

David Hudnall, a reliably left-of-center columnist for the Star, urged a yes vote but largely conceded my points. In a column titled, “Just hold your nose and vote for Kansas City’s earnings tax,“ he agreed the tax is regressive and supports lavish subsidies for wealthy developers.

Weirdly, Hudnall then lamented that the tax requires a public vote in the first place. But he wistfully concluded, “I’d welcome a little more fiscal discipline at City Hall.”

The Star’s Editorial Board also endorsed a yes vote but conceded the tax is regressive and “economically harmful”—a significant admission. The piece further conceded, “The earnings tax is not the best way to fund such a large proportion of our city services.” Another notable concession. The piece closed not with a demand for action, but with little more than meek, wishful thinking:

We hope to see future City Council candidates campaigning on a pledge to reform the system. We also hope to see council members who vow to keep the basics of what makes a city hum fully funded—and ratchet back the incentive handouts.

Back in 2021, the last time Kansas City voted on the earnings tax, the Editorial Board urged a yes vote after admitting the tax was regressive and fed the city’s incentive culture. (They even admitted that the sales tax was too high.) Yet they feared reform would be worse.

In 2015, another reliably left-of-center columnist for the Star, Yael Abouhalkah, lamented that the city has neither explored alternatives nor held a meaningful discussion about the tax. He also observed that the tax is regressive and hits the poor hardest.

The problem, then as now, is that city leaders have no incentive to explore alternatives or discuss a 10-year phaseout of a tax widely acknowledged as harmful. Why? Because rather than demand better, the Star’s opinion class and business leaders reliably fold at the slightest scare tactic.

Hand-wringing about Kansas City’s flawed tax structure is not enough. We need city leaders, including those at the Star, to live up to their principles. Otherwise, what is the point of having a platform?

The Mayor and Council have failed to address these issues. There is no reason to expect that will change until voters demand it.

The post Earnings Tax Defenders Unable to Defend Earnings Tax 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.

Listen on Spotify

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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.

The post Senate Joint Resolution 111 and Property Taxes appeared first on Show-Me Institute.

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.

Missouri’s primary tax and expenditure limit, commonly referred to as the Hancock Amendment, is no longer providing an effective check on government growth.

The Solution

Improve and expand the taxpayer protections provided by the Hancock Amendment by adopting a Taxpayer Bill of Rights.

Key Facts

• On paper, Missouri’s Hancock Amendment promises to keep state government from growing faster than Missourians’ pocketbooks, but it has proven incapable of doing so in recent years.
• A Missouri Taxpayer Bill of Rights could build on the legacy of the Hancock Amendment to provide the strongest protection against unconstrained government growth in the country.
• A Taxpayer Bill of Rights would keep the state’s revenues and expenditures from growing faster than the sum of the inflation rate and population growth, ensuring government cannot grow in scope without voter input.
• Unlike the Hancock Amendment, which grew out of date and has failed to provide taxpayer refunds for the past 26 years, a Taxpayer Bill of Rights would guarantee tax cuts or refunds if revenues ever exceed the defined limit.
• Although the Hancock Amendment requires property tax rates be rolled back when property values increase too quickly, this requirement is not being applied to the personal property taxes paid on the value of items such as cars, boats, and farm equipment.

Hancock Protections No Longer Effective

In 1980, and then again in 1996, Missouri voters approved amendments (the original amendment is commonly referred to as the Hancock Amendment) to the state’s constitution that were intended to place important restrictions on the government’s ability to raise and spend tax dollars. But in the more than 40 years since its initial passage, serious weaknesses in the amendment’s restrictions have been exposed.

One of the amendment’s main selling points—a state revenue limit with a tax-refund provision—was intended to prevent government from growing too fast. If revenues exceeded the limit, state taxpayers would receive a refund of the difference. The problem is that policymakers and an out-of-date compliance formula have rendered the tax refund threshold nonfunctional, resulting in state taxpayers not receiving a refund in more than 20 years. In fact, without reform, it’s unlikely that the Hancock Amendment’s tax refund provision will ever be triggered again.

A New Standard for Tax and Expenditure Limits

Missouri needs stronger, more resilient taxpayer protections. Missourians should be assured of the following principles:

1. When tax revenues grow faster than the sum of inflation and population growth, taxpayers will get an automatic tax cut or refund unless they explicitly approve using the money for spending.
2. Comprehensive state spending—including on tax credits—cannot grow faster than inflation plus population growth without voter approval.
3. When property values increase faster than inflation, tax rates will be automatically reduced to ensure taxes aren’t raised without voter approval.
4. When lawmakers want to substantially raise, change, or extend taxes, there will always be a transparent process for voter approval.

A Missouri Taxpayer Bill of Rights would accomplish each of these goals. Additionally, it would move our state to the front of the national pack for fiscal stewardship by providing Missourians the strongest tax and expenditure limit in the country. The Missouri Taxpayer Bill of Rights is designed to stand the test of time and contains strong enough definitions to avoid the political gamesmanship that has plagued the Hancock Amendment for decades.

The Missouri Taxpayer Bill of Rights would also extend the property tax rate rollback requirements to the two property taxes—the personal property tax and the commercial surcharge—that the Hancock Amendment currently exempts (three if you count the general exemption from this requirement for all property taxes levied by the Kansas City 33 School District). Perhaps this is because people assumed used car values would always decrease, which they did until 2021 and 2022. The windfalls local governments started receiving in 2022 from increased used-car valuations should be addressed, and rate rollbacks should be required for personal property as they are for real property.

Hancock Amendment Revenue Limit vs. Limits from a Taxpayer Bill of Rights

Missouri is currently more than $4.9 billion below the Hancock-established revenue ceiling.

Policy Recommendations

• Adopt a Taxpayer Bill of Rights that stands the test of time and more effectively realizes the spirit of the Hancock Amendment through robust limits on state spending and revenues.
• Ensure that government cannot grow in scope without voter input, and if revenues exceed the defined limit, taxpayers receive automatic tax cuts or refunds.
• Expand the Hancock Amendment’s property tax rate rollback provisions to include personal property taxes and the commercial surcharge.
• Guard against runaway inflation by protecting taxpayers from drastic property assessment increases.

The post Taxpayer Bill of Rights appeared first on Show-Me Institute.

On November 4, Springfield voters will decide on a proposal to increase the city’s hotel tax by three percent. The proceeds from the new tax will help fund a new convention center for the city. A recent report paid for by the Visit Springfield tourism bureau said exactly what Visit Springfield wanted it to say: that a new convention center will generate enormous revenue for the Springfield area. The report claims a new convention center will drive $1.3 billion in new spending over the next 30 years. Exaggerated estimates like this one have been made on behalf of convention centers all around the country for decades, and the historic evidence is clear that Springfield voters should be dubious of such claims.

Between now and November, Springfield residents who visit St. Louis should drive by the largely empty dome attached to St. Louis’s downtown convention center to see how these convention center promises often play out. That dome was a part of a large convention center expansion in the 1990s. The same promises of growth, revenue, and utopia were all made when St. Louis voters approved a similar hotel tax increase back then. Now the dome is mostly empty, and the regional body that manages it is struggling to pay for its upkeep. St. Louis’s local tourism agency thinks the solution is the same thing it always is: further expansion of the convention center. Like a Cold War general in a Kubrick movie or a carpenter with a box full of nails, tourism agencies have the same solution for every problem. Economic recession? Expand the convention center. Economic growth? Enlarge the convention center. Global nuclear war? Definitely gonna need a bigger convention center to commiserate in.

The increased hotel tax isn’t the only public money being used as part of this plan. Other local sales taxes are slated to be used for funding, and state tax dollars are being considered. Tourists, Springfield residents, and possibly all of Missouri will get to pay for this new event space, whether it is actually needed or not.

Haywood Sanders is a researcher and writer with the University of Texas–San Antonio who has studied convention center expansions for decades. He has documented how cities and tourism agencies systematically inflate projections to get these projects approved. Sanders has reviewed the Springfield convention report and noted in an interview with a Springfield News-Leader reporter earlier this year that the report didn’t state how it calculated its room occupancy estimates and ignored underwhelming numbers of comparable convention centers in Overland Park, Kansas, and St. Charles, Missouri. Sanders states that the convention-center industry peaked in the early 2000s and shows no signs of returning to the success it enjoyed back then. With two major convention areas so close by in Branson and Lake of the Ozarks, a new center in Springfield will face intense competition. But I have no doubt that local Springfield convention-center boosters will ignore reality in their quest for tax revenue and city spending.

Visit Springfield wanted a report that claims a convention center will be an economic boon for the city. They got it. As Springfield residents prepare to decide on the hotel tax increase proposal, they should study the work of Heywood Sanders and others to learn about how these claims have been made about many other convention centers in many other cities, and how they usually fail. Springfield voters can also go to St. Louis to see the failures of these promises with their own eyes. Taxpayers should not be on the hook for convention centers whose overstated benefits, such as they are, will largely go to private entities. This is the Show-Me State, and the claims being made by supporters of the convention center for Springfield should be met with a healthy dose of skepticism by voters.

The post Springfield Voters Should Be Skeptical About Convention Center Claims 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.

In 2001, a group of very libertarian-minded activists launched the Free-State Project, which encouraged thousands of libertarian believers in minimal government to move to New Hampshire. The overall success of the project has been limited, for a variety of reasons, but if imitation is the sincerest form of flattery, then I’d like to see people in Missouri flatter the Granite State and try to do a similar thing here in one of our many cities.

What would such a limited-government, free-market oriented municipality look like in Missouri? To start with, it should be modeled on successful, small-government municipalities like Weston, Florida, and Sandy Springs, Georgia, which provide many local services by contracting with the private sector. It should not be based on the more radical, no-government “utopias” like Grafton, New Hampshire, where the removal of almost all government services led to an increase in bear attacks.

How many limited-government activists would it take to create a free city in Missouri? Not very many. There are hundreds of existing municipalities here with less than a hundred residents where, at most, a few dozen show up to vote in local elections. If, say, 50 true free-market believers moved into one city, what types of changes could they make to create that desired free city?

To start with, they could remove all municipal planning and zoning rules and replace them with private contracts managed by property-owner associations where allowed. Those property-owner associations could manage issues like short-term rentals, trash collection, and home-based businesses.

Municipalities, especially small ones, could focus on contracting with larger cities or counties to provide many services, like policing or building inspections. The new free city could contract with private companies to provide many other services, like trash collection and recreation management. It could similarly contract with nonprofits for some other services where profit opportunities are limited, such as animal shelters. If it had municipal utilities, it could privatize them into regulated, private utilities. The free city could reduce local code requirements, permitting rules, and occupational licensing to the largest extent possible. The important ones, like fire codes and elevator inspections, could be kept, while arbitrary or obsolete regulations, like television repairman licenses and pool-table taxes, could be thrown out.

None of these examples are farfetched. Every one of the above examples is already in place in a city somewhere in Missouri. Private utilities provide water, gas, and electricity to millions of Missourians. Cities contract with counties and other cities for services all over the state. In St. Louis County, every municipality (88 at last count) contracts with the county for at least some inspection services. Nonprofits provide important services to the public, like Pinnacles Youth Park near Columbia, and operate many animal-care facilities. Private businesses operate city-owned golf courses and manage municipal swimming pools throughout the state.

How would a free city fund these services? It would maximize private contracts between residents and companies and enact user fees to the largest extent possible. Low general sales and property taxes could fund the rest, along with revenues shared from other sources, like the gas tax. Importantly, such a city would avoid special deals such as tax abatements or tax-increment financing, for some businesses or people. Making the sales and property tax bases as wide as possible would allow the rates to be as low as possible for everyone. This free city would absolutely avoid the errors of a local income tax such as exist in Kansas City and St. Louis.

Overall, a Missouri free-city project would create a municipal government system not all that different from those in many rural, unincorporated parts of Missouri. It would just be in a more urban or suburban setting. It may seem unrealistic to expect hundreds—or even dozens—of people to make such a move based on political philosophy. But as a model of quality, low-tax local government, it is perfectly realistic. While no city may have enacted all of these ideas, each of them has been enacted with success somewhere. We just need the right number of people to put it together all at once.

I vote we try it somewhere near the Lake of the Ozarks.

The post The Free-City Project for Missouri appeared first on Show-Me Institute.

There wasn’t anything new in the testimony. It included romantic nostalgia for bygone players and the pride we have in our teams, claims about all the economic impacts that these subsidies will drive, and, of course, fears that the teams will leave if we don’t give them what they want.

Toward the end of the supporters’ testimony, Wes Rogers, a Kansas City councilmember and former state legislator, rose to speak in favor. His remarks included the following:

I make my living selling and leasing commercial dishwashers to restaurants. Already, no matter where the Royals and Chiefs go, Kansas is kicking our butt. I install more dishwashers in the state of Kansas than I do in the state of Missouri, period. And there’s a whole bunch of reasons for that I’m happy to talk about later. But I promise you this, if we put this stadium or the Chiefs stadium in Kansas, my guys are going to be to Kansas more than they are to Missouri and that’s going to continue. And so we can say this doesn’t have an economic impact. I know it does because I’m paying 20 guys to go to Kansas instead of Missouri to work and that number is going to increase.

This is odd testimony in favor of subsidies as a source of economic development because the Chiefs and Royals already have stadia in Missouri. Yet (despite this?) he argues “Kansas is kicking our butt,” and he is seeing more business on the Kansas side. Redirecting taxpayer dollars toward new or refurbished facilities won’t change that.

I suspect Rogers knows that the real reasons for Kansas outperforming Missouri are the “whole bunch of reasons” he alludes to. For example, the high tax rate and low level of services Kansas City provides—in large part because of taxpayer-funded subsidies, such as those for sports teams, being such a huge drain on city coffers.

Earlier in his testimony, Rogers offered, “I’m actually reading economic studies about baseball, which I’ve never done before.” This is good news, but if the statement above is a reflection of his grasp of the material so far, he needs to do more reading—and rereading.

The post The Miseducation of Kansas City Councilman Wes Rogers appeared first on Show-Me Institute.

Here’s an overview of some of the legislation passed this session (some of which is still awaiting the governor’s signature):

$50 MILLION FOR MOSCHOLARS PROGRAM

• First public investment in the K–12 scholarship program, with $50 million approved in the state budget
• Could triple the number of students served, expanding access to private school, homeschooling, and
specialized support

TELEHEALTH AND HEALTH CARE REFORMS: SB 79

• Improves telehealth access by allowing both audio-only and audiovisual services on any HIPAAcompliant
platform
• Expands health benefit offerings by allowing certain organizations to offer health plans to members,
sometimes referred to as farm bureau or association health plans, without many of the burdensome state
and federal restrictions that apply to traditional insurance offerings

PROTECTING PROPERTY RIGHTS: HB 595 AND HB 343

• Prohibits cities and counties from requiring landlords to participate in voluntary federal housing
programs such as Section 8 housing vouchers
• Bans caps on security deposits and restrictions on tenant screening criteria like income, credit, and
criminal history

CAPITAL GAINS TAX EXEMPTION: HB 594

• Exempts 100% of long-term capital gains from Missouri state income tax for individuals
• Applies to all individual income reported as capital gains for federal tax purposes, starting tax year 2025
• Designed to encourage investment and entrepreneurship by reducing the tax burden on productive
activity

EXPANDING LICENSE PORTABILITY: SB 150

• Expands access to temporary occupational licenses across most licensed professions in Missouri by
repealing the harmful compact exemption, ensuring that more professionals moving to Missouri can
start working without unnecessary delays
• Provides expedited occupational licenses to law enforcement spouses moving to Missouri, allowing
those licensed in another state for at least one year and in good standing to receive a Missouri license
within 30 days of applying

Download a copy of the report here.

The post 2025 End of the Legislative Session Report appeared first on Show-Me Institute.

The post Social Security, Tax Cuts, and the Future of Retirement with Andrew Biggs 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.

Missouri taxpayers don’t have to look too far to find an example of the last time so-called budgetary savings were illusory—we can look at this year’s budget. When the FY 2025 budget was passed last May, our state’s elected officials celebrated their “conservative” budget. They said it was the first budget in a decade that was smaller than the previous year’s, which I noted at the time didn’t amount to much. It was true that the budget they initially passed did call for less spending than years prior, but in the months since, we’ve discovered that claims of budget cutting didn’t hold up.

When the budget passed last May, I explained that the totals were likely misleading, and the general assembly’s recent approval of a supplemental funding bill all but confirms it. To finish out the year, Missouri’s government needs nearly $2 billion extra dollars, with almost $400 million of that total coming from general revenue (state income and sales tax dollars).

As the above table shows, once you take into account all the funds that are truly needed for the year, this year’s budget exceeds last year’s by more than $700 million. What’s worse is that the general revenue portion is similarly higher than last year. This is problematic because not only is Missouri on track to spend more than the state projects to bring in (which was the case even before this extra spending was added), revenue collections are now behind where they were one year ago.

In other words, Missouri is in worse fiscal shape today than it was last year, and despite efforts to make it seem as though spending was being reined in, we’re once again on a path to spend more this year than ever before. As Missouri’s Senate begins its work on the state’s FY 2026 budget, it should be clear that taking real steps to rightsize state government is essential. Taxpayers should keep a close eye on the budget negotiations in the coming weeks. Legislators may try to sell Missourians on a bill of goods again.

The post Beware the Budget Mirage 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.

Kehoe committed to reducing Missouri’s income tax, which is welcome. Missouri needs to be more competitive with the states around us who are also working to attract families and businesses—including those already living and working in Missouri.

But he also introduced a budget larger than previous years, and detailed a number of places where he wanted to increase spending. Those increases included a number of items regarding public safety, such as $10 million for the Blue Shield Program, $2.5 million to support the sheriff’s retirement system, a new crime lab in Cape Girardeau, and boosting spending on the Blue Scholarship Program for law enforcement basic training.

Kehoe indicated he wanted $10 million to support childcare providers, $15 million in additional funding for career and technical centers in addition to $5 million more on an annual basis for their operational costs, $800,000 in funding for Future Farmers of America, and $55 million in new bonding for state fair facilities.

Regarding education, Kehoe indicated he wanted to spend $200 million more for the education foundation formula, $370 million to fully fund school transportation, $33 million for teachers’ salaries, and $30 million in grants for rural schools.

He also asked for an additional $10 million to be spent to support Veterans Homes.

The tab comes to $53.4 billion, $450 million more than the previous year. He did not mention any cuts to spending. But he did commit to ending the state’s income tax, “once and for all.”

All the programs the governor wants to support may be good and worthwhile. But it doesn’t take an experienced budget analyst to see the problem: one cannot continually increase spending while promising to zero-out an income stream that accounts for almost 60 percent of the state’s general revenue according to the state’s Office of Administration (see page 25).

Missouri’s financial position is all the more difficult because Kehoe’s predecessor, Mike Parson, spent money like a blue state progressive.

Reducing Missouri’s income tax to zero is necessary because of the economic benefits that will accrue. But if the effort is to be successful, Missouri needs to reduce spending. A lot.

I do not envy the incoming governor and those tasked with cutting spending—but there is no other way forward.

The post Missouri’s Tough Road Ahead appeared first on Show-Me Institute.

Is this legal? Perhaps.

Is this wrong? Absolutely.

The Hancock Amendment clearly states that new taxes and tax increases have to be approved by voters. Here is Section 22(A) of the state constitution (emphasis added throughout):

Section 22. (a) Counties and other political subdivisions are hereby prohibited from levying any tax, license or fees, not authorized by law, charter or self-enforcing provisions of the constitution when this section is adopted or from increasing the current levy of an existing tax, license or fees, above that current levy authorized by law or charter when this section is adopted without the approval of the required majority of the qualified voters of that county or other political subdivision voting thereon.

However, there are a few exceptions. The one the city seems to be relying on here is in RSMO 137.073.5, which states that a city that has previously voluntarily lowered its property tax rate below the legal ceiling may raise it up to that ceiling without a vote of the people.

However, the state auditor’s annual report on property taxes (page 4) explains how this works:

Sections 137.073.5(3) and 137.073.5(4), RSMo, provide that a voluntary reduction taken in a non-reassessment year (even numbered year) results in a reduced tax rate ceiling during the following reassessment year (odd numbered year). These provisions also allow taxing authorities that voluntarily reduce a tax rate in a previous even numbered year to reverse the impact of the voluntary reduction to reinstate a higher tax rate ceiling in the following even numbered year. To increase the tax rate in the following even numbered year, the taxing authority must conduct a public hearing, and adopt an ordinance, a resolution, or a policy statement justifying its action before setting and certifying its tax rate.

That explanation makes clear that the laws above are intended for reductions and increases that occur in subsequent years. The idea that Town and Country could reduce its property tax rate to zero and then increase it 27 years later without a vote of the people is, frankly, absurd. It’s a total violation of the spirit of the Hancock Amendment.

While this may not be a violation of the law, it is appalling. The residents of Town and Country have every right to be angry that they are being denied their right to vote by the city. Furthermore, if it is legal (and I am hoping someone challenges it in court) this loophole needs to be addressed by the state legislature. A city or county should not be able to set a tax rate for 27 years at zero and then just raise it because two generations ago voters approved a higher rate the city just hasn’t used.

This sort of chicanery is an example of local government at its worst.

The post Does the Hancock Amendment Mean Anything to Town and Country? appeared first on Show-Me Institute.

On August 12, the Show-Me Institute and Show-Me Opportunity hosted a virtual event where Elias Tsapelas, director of state budget and fiscal policy at the Show-Me Institute, and Aaron Hedlund, chief economist at the Show-Me Institute, made the case for a Missouri Taxpayer Bill of Rights. The event explored the limitations of the current Hancock Amendment, proposed reforms to better protect taxpayers in the state, and more.

Download the full Missouri Taxpayer Bill of Rights Policy Brief Here

Produced by Show-Me Opportunity

The post Watch: The Case for a Missouri Taxpayer Bill of Rights Virtual Event appeared first on Show-Me Institute.