Tax Reform Discussion Gets Serious in Missouri!

Regular readers of our blog will know that United for Missouri’s Future (UFMF) has been consistent in educating Missourians on tax reform since its inception.  As a legislator I favored tax and spending reform.  Every organization that I have been fortunate to lead since leaving the legislature from AFPMO to UFMF has had as a part of our mission conservative fiscal policy as a major objective.

There have been a number of tax reform efforts and discussion led by legislators over the years. Representative (now Senator) Ed Emery, Representative Andrew Koenig, former Senator Chuck Purgason, and former Senator Luann Ridgeway have been leaders in the discussion.  Until now, they have been legislative voices in the wilderness. That all changed last week!

By now, everyone is hopefully aware that Kansas essentially stopped the so-called “border war” battles and made the move to claim victory in the war.  You can read more about what Kansas has done here.

Senators Eric SchmittWill Kraus and John Lamping presented bills last week that would result in a comprehensive and cohesive change to Missouri’s tax policy.   Their presentations marked the most extensive and in-depth conversation to be held about tax reform in decades.  The bills: SB11SB26 and SB31 vary and none are likely to be the final form.

The Senators were not only well versed on what their bills do but versed on why Missouri needs to be engaged in changing our tax policy.  Almost every state around us is looking to reduce and/or eliminate the income tax.  Tax policy is not the only factor in people moving from one state to another but it is an important one.

A recent book, How Money Walks - How $2 Trillion Moved Between the States, and Why It Matters details how much wealth is leaving states like Missouri for states who have better tax burdens and better regulatory environment.

Oklahoma is also working to reduce their income tax.  The Oklahoma Council of Public Affairs has published a couple of good resources on the topic.  Eliminating the State Income Tax in Oklahoma: An Economic Assessment and Economics 101 are very good reads on the topic.

As you would expect, the big government folks were out in force against the bills.  There was nothing really new in the arguments.  You know, the world is going to end if you eliminate income taxes etc.  They did offer some alleged unfairness in the Kansas plan.

For example, the opponents claim that  the Kansas plan gives small business owners a tax cut but not W-2 employees.  That’s false on at least two counts.

The most obvious inaccuracy is that W-2 employees in Kansas DO GET a tax cut.  The top rate is reduced from just over 6% to just under 5%!  As of January 1, 2013, W-2 employees saw a real tax cut.

One thing the opponents never seem to get is that if employers don’t make money the W-2 employees don’t have jobs. The small business pass through tax cut will help not only the owners but employees as well.

The other allegation is that there has been nearly $1 billion dollars in tax cuts in the past 15 years or so yet the growth that is purported to come from tax cuts isn’t being seen as measured by state government revenues.  Aside from using the wrong measure, the allegation simply doesn’t hold up.

None of the tax cuts were part of a comprehensive tax reform policy. Almost all of them were based on politics not tax policy.  For example, the largest tax cut was removing the state general revenue sales tax from food.  The tax cut dealing with the elimination of the tax on social security was fair since that money has already been taxed once but neither of these has an impact on making Missouri a more attractive state to relocate a business.

The biggest problem with the sales tax is that with over 130 exemptions the sales tax base is hollowed out.  It would bring in more and be more dependable if the base were broader.

If Missouri is going to grow economically and be competitive with neighboring states much less the rest of the country we need to tax reform.  So far, the legislature is off to a good start on the discussion.

#2013taxreform