The initial and persistent reason cited by Republican state legislators for the terrible tax “reform” bill, HB253, that they sent to Governor Nixon is that it is necessary if we are to compete with Kansas in securing and retaining jobs. If businesses relocate to Kansas, which has gutted its tax system, they take their jobs with them, or so the argument goes.
The Missouri Society of Certified Public Accountants succinctly summarizes the content of the bill as follows:
HB253 reduces personal [to 5.5%] and corporate tax rates [to 3.25%], establishes for a deduction for flow through income for businesses, and increases the personal exemption amount for low income taxpayers. The legislation offsets the costs of these reductions by implementing the Streamlined Sales tax agreement, expanding Nexus for out of state vendors, and setting revenue growth targets that must be met before the rate reductions are fully implemented.
Although legislators try to lowball the yearly amount of revenue the state would forfeit, putting the cost at around $500 million – which is bad enough – the Missouri Budget Project argues that the tax cuts will cause the state to ultimately lose close to a billion dollars. As for our stalwart lawmakers fear of Kansas, the Post-Dispatch’s David Nicklaus notes that:
The Center on Budget and Policy Priorities, a liberal Washington think tank, recently looked at six states that enacted big tax cuts between 2000 and 2007, and five more that cut income taxes in the 1990s, and found that they gained no particular economic advantage.
Nevertheless, the race to the bottom in regard to corporate taxes is a growing phenomena, particularly in red states.This in spite of the fact that there are possibly better ways to deal with corporate taxes that would address revenue needs without aggravating the ill-perceived worry about competitivenes. Jia Lynn Yang of WaPo’s Wonkblog, cites the example of California’s new sales-based corporate tax law:
… Let’s say a company earns 20 percent of its sales in California. The company would pay 20 percent of its worldwide sales to California at the state’s corporate tax rate. No need to worry about where the firm has offices or where its employees work – and no chance of the firms shifting their income to other states using elaborate, hard-to-trace methods.
Although California’s new law has an elective approach that could be problematic, this sales-based system has been touted as a solution to corporate taxation on a national-level – it would put a stop to corporations like Apple moving their profits off-shore to avoid U.S. taxes. Whether or not it would offer a solution to a state like Missouri – it does not address the issue of the “right” corporate rate – it does show that there are better ways to approach corporate taxes than letting business off the hook entirely without compensating adequately for the lost revenue – or by sticking the state’s middle and working classes with the bill in terms of higher stales taxes, which the Missouri legislation originally proposed to do.
Unfortunately, coming up with such solutions takes a commitment to use government to further the welfare of Missouri’s citizens, along with at least a modicum of intelligence; it also precludes ideological predispositions against taxes as an article of faith. Even more significantly for many Missouri GOP lawmakers, such solutions would not garner big checks from big-time progressive taxation opponents like Rex Sinquefield or the corporate pooh-bahs behind the American Legislative Exchange Council (ALEC), who have been pulling the strings of many of our state pols for some time.