The Missouri Senate has begun consideration of three bills that would, to a greater or lesser degree, cut the state income tax for individuals and corporations.
The ostensible reason for this effort is to make Missouri’s business climate more competitive with that in Kansas, where individual income rates have just gone down and where income taxes on most small corporations have been eliminated entirely.
The data-be-damned reasoning behind this is so wrong that it’s difficult to know where to begin. But let’s try:
- First and foremost, the proposals amount to corporate welfare. They would put money into the pockets of business owners — who might or might not use the money to create jobs; studies suggest not. The tax cuts would reduce state revenue, meaning less money for education, mental health, corrections and other niceties.
- Missouri already asks little of its corporate citizens. The corporate income tax rate is 6.25 percent, but companies can deduct 50 percent of their federal income tax payments, meaning the effective rate is 5.2 percent on most businesses. That’s less than the personal state income rate of 6 percent, so any Missouri family earning more than $9,000 a year pays a higher tax rate than, say, Anheuser-Busch InBev. Also, smart businesses pay state taxes with 75-cent dollars they obtain by buying tax credit coupons.
- Among the 50 states, Missouri ranked 44th in per capita corporate tax collections in 2010, according to Census Bureau data. That wasn’t enough, so in 2011, the Republican Legislature passed and Democratic Gov. Jay Nixon signed a corporate welfare bill phasing out the state tax on business assets. The so-called franchise tax rate was a not-so-onerous 1/30th of 1 percent.
- Missouri hasn’t seen much return for all of its business-friendliness. That’s not surprising, because study after study has shown business tax rates have very little to do with a state’s economic performance. Factors like the cost and quality of the workforce, proximity to customers, transportation infrastructure and access to suppliers are more critical.
- The Kansas experience suggests that whacking personal and corporate tax rates will create huge problems. The Legislature there passed Gov. Sam Brownback’s tax-cut package in 2011, and the cuts went into effect Jan. 1. In a report released Thursday, Kansas legislative budget analysts said that despite a recovering economy, the state would face a $782 million budget shortfall in 2018. The Legislature has cut aid to education and raised taxes on groceries. Cutting aid to education is the worst thing a state that is serious about economic development can do. Raising taxes on groceries to finance corporate welfare is simply wrong.
In Missouri, the various tax-cut bills are Senate Bill 11, sponsored by Sen. Eric Schmitt, R-Glendale; SB 26, by Sen. Will Kraus, R-Lee’s Summit; and SB 31, by Sen. John Lamping, R-Ladue. The real force behind the bills is retired investor and anti-income tax activist Rex Sinquefield of St. Louis.
On KTRS Radio last Oct. 5, Rick Edlund, a guest morning-drive host, welcomed Mr. Sinquefield and Patrick Ishmael to discuss the problems that Kansas’ new tax breaks allegedly were causing for businesses in Kansas City. Mr. Ishmael is an analyst for the Show-Me Institute of St. Louis, a believe-tank co-founded by Mr. Sinquefield to propagate his free-market gospel.
This was a tad incestuous. Mr. Edlund is the Show-Me Institute’s communications director, a fact he acknowledged to listeners before he teed one up for the boss, asking Mr. Sinquefield what impact he thought the Kansas tax cuts would have on Missouri.
“I think this is a massive tsunami that’s going to hit Missouri,” Mr. Sinquefield said. “Now I also want to fully disclose that I gave money to promoters of this in Kansas and I also gave money to promoters of the same sort of thing in Oklahoma, as a way of getting something going here in Missouri. Our General Assembly has been possessed with inertia.”
Think of it: To goose Missouri, where he has nothing much to show for the $12 million in political contributions he’s made since retiring from his investment firm in 2006, Mr. Sinquefield is willing to buy influence in Kansas and Oklahoma, too.
Aside from strange metaphors (tsunamis from Kansas?) and anecdotes, Mr. Sinquefield doesn’t offer much evidence to back up his assertions. It’s more of a theological belief, one that might be true if taxes were the only factor in business or personal decisions.
For decades, whenever their children reached school age, many people from Kansas City, Mo., have fled across State Line Road into Johnson County, Kan., suburbs like Leawood, Prairie Village and Overland Park. The big reason: The schools in the sprawling Shawnee Mission School District were superior to those on the Missouri side of the road.
Malls, doctors, dentists, car dealers and the like also went to Kansas, not because of the tax climate, but because that’s where their customers had moved.
These days, Kansas Citians with school-age children often flee across the Missouri River into Missouri-side suburbs in Clay and Platte counties. Reason: The schools are good there, too, and there’s a good new bridge and homes are affordable. Businesses have followed them and will stay there, regardless of Kansas-side taxes, because that’s where the customers are.
Here’s the irony: Tax-cut fever in Kansas exacerbated an already bad school-funding crisis. Last month, a judge ordered the state to increase per-pupil spending by at least $654. This will cost the state about $442 million a year, money it doesn’t have and won’t get because of the tax cuts.