In a recent column, Ray McCarty applauded Kansas’ recent tax changes in an effort to bolster similar but equally misguided tax cuts here in Missouri. But the truth is clear: cutting taxes for the rich while undermining investments in things that Missouri families rely on everyday – like neighborhood schools, roads and bridges, and safe communities – is the wrong choice for our state and our economy.
McCarty’s cherry-picked data in favor of these tax cuts are highly misleading. In an effort to make Kansas’ tax cuts appear more successful, McCarty contends that Kansas state revenue is growing, despite its tax cuts. What he didn’t tell you is that nearly all states are seeing a boost in income tax collections that are likely the result of an anomaly related to capital gains. Kansas is forecasting a $460 million budget shortfall next year, despite a $300 million sales tax increase that hits low- and middle-income Kansans the hardest.
Though Kansas’ tax changes have been in place only a few months, the state is already experiencing negative results from its tax experiment. The Kansas Department of Education recently found that the state’s public schools will be underfunded by more than $650 million by 2015, and the state approved tuition increases at public universities, putting a college education out of reach for many families. And as the state’s credit rating continues to be downgraded due to the financial instability caused by irresponsible tax cuts, roads, bridges, and even the state’s economic development programs will become more expensive for Kansas taxpayers.
While McCarty contends that job growth has occurred in Kansas, recent employment data actually shows that since Kansas cut taxes, Missouri is adding jobs at a faster rate than Kansas. Since its tax cuts went into effect, Missouri had the 12th fastest employment growth in the nation, whereas Kansas ranked 23rd.
The bottom line is that Missouri shouldn’t be racing Kansas to the bottom, and it doesn’t need to cut taxes to be competitive. It already has low taxes, which make starting and running a business easy compared to other states. The Tax Foundation ranks Missouri as one of the top states to do business, easily surpassing its neighbors.
Further tax cuts won’t improve Missouri’s competitiveness – they will undermine it. Although the tax savings for most businesses won’t be enough to create a new job, tax cuts will undermine Missouri’s ability to invest in education, transportation and public safety, critical public services that make Missouri attractive to business. As a result, the cost of doing business in Missouri will increase, as companies will be forced to spend more of their own money on educating and training workers, securing their workplaces, and repairing infrastructure.
Moreover, the legislature’s tax plan is riddled with errors, including a so-called “trigger” requirement which doesn’t apply to some of the more costly components of the bill. A separate trigger that is dependent on the federal Marketplace Fairness Act becoming law will cause a one-time hit to the state budget of more than $1 billion. And because schools, universities, public safety organizations, and those who administer services for seniors have no idea when this federal action will occur, it will send an unexpected fiscal shock to the critical public services on which we all depend.
Further, HB 253 disproportionately benefits the wealthy, but not in any way that would create jobs as its supporters claim. While lawyers, accountants, and lobbyists who have $500,000 in business income can use a loophole to claim an exemption that will give them a $2,400 tax cut under this plan, a family making $48,000 a year, roughly the median income in Missouri, gets about $6. That $6 is quickly eaten up by increased costs related to a new sales tax on prescription drugs and college text books imposed by the new tax scheme.
The Governor was right to veto this ill-conceived tax cut, and lawmakers should sustain it. Missouri’s competitiveness and quality of life depend on it.
Coalition for Missouri’s Future
Note: Brian Schmidt served as the Executive Director of the Missouri General Assembly’s Joint Committee on Tax Policy from 2005 to 2011.