(In his latest newsletter, Sen. Will Kraus, R-Lee's Summit, lets us know that the 2014 legislative session is likely to be a repeat of 2013. He loved HB 253 and is ready to have another go at following the Kansas and Oklahoma example and cutting taxes drastically.)
Last month, I detailed a broad case as to why Missouri needs tax reform. In this Capitol Report, I want to give you some of the details we used to support last year’s tax bills.
The biggest concern of those that seek tax reform is that Missouri is not growing at a fast enough pace. The best barometer of that fact is our state’s loss of congressional districts. Those districts are based on population, and Missouri has lost eight seats since 1930, three seats in the last 40 years. Contrast that with the state of Washington — where there is no state income tax — which has gained five seats since 1930 — and Tennessee — another state with no state income tax — which has held steady. Both states now have more representatives in Washington D.C. than Missouri.
Critics of House Bill 253 claim Missouri is already a low-tax state. While our corporate rate is competitive, our personal income tax rate is not, ranking only 27th best in the nation. More than 50 percent of for-profit businesses file taxes at the individual rate, which is a striking realization that we are not competitive where it counts most — for small businesses.
Those statistics bear out in another way — our business-friendly rankings. Several organizations rank states every year in this area. Forbes Magazine ranks Missouri at No. 30, CNBC ranks us No. 26 and CEO Magazine rates Missouri at No. 31. Those are numbers we need to be committed to improving.
Finally, we need to look at Missouri’s actual economic competitiveness. The best economic statistic in this regard is our state Gross Domestic Product (GDP) and our GDP growth compared to other states. Missouri currently ranks No. 37 in GDP per capita. Even worse, we only rank No. 47 in GDP growth from 1997-2012. Our state GDP growth in 2012 was 2 percent compared to the nation’s average: 2.5 percent. All those numbers, combined with our 28th place rating for unemployment, show that Missouri is lagging economically.
Tax reform isn’t the only area we need to improve, of course. Lowering oppressive business regulations, fixing our broken tort system and reforming tax credits are all just as important. But tax reform is a big part of the puzzle, and the area I must focus on as chairman of the Senate Ways and Means Committee.
It is also important to look at what is happening in surrounding states. That doesn’t mean we are reacting to, or copying, what they have done. But tax changes in Kansas and Oklahoma will have an effect on our competitiveness. While Kansas may have gone too far, and may pay for that down the road, we can’t ignore the fact that its tax structure could attract Missouri businesses.
Some opponents of tax reform claim that Kansas’ tax policy will not draw residents and businesses from Missouri. However, I have had several conversations and received several emails from people in our own district who are considering a move. The most recent was a gentleman whose CPA advised him to consider moving his small business and family to Kansas. The CPA had already done so herself. They calculated that the tax savings — remember, Kansas now has no tax at all on pass-through earnings for small businesses — outweighed the higher home prices. This puts Missouri in a dangerous position to lose revenue.
Oklahoma’s 2004 tax cuts may show a better path: small, incremental changes over time. Since those cuts, Oklahoma has never had a decline in revenue. In fact both income and sales taxes rose well above expectations. Those tax cuts, signed by a minority party governor, worked so well that Oklahoma instituted another cut last year. That leaves a second neighboring state who has gained a clear competitive advantage.
As we move forward with tax reform legislation in 2014, economic development will be our main focus. Exactly how to do that, and how to do it without negatively impacting crucial budgets, is still being discussed. To do nothing will only set Missouri further behind, and present a larger risk of reduced revenues in the future.
Please feel free to contact me with any questions or concerns at any time. We look forward to hearing your comments and suggestions and trying to answer any questions you may have. You can reach us by phone at 573-751-1464, or e-mail at will.kraus@senate.mo.gov.
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