Missouri Tax Policies Could Use a Guy Like Joel

Director of Revenue Joel Walters has published a paper surveying Missouri’s tax system. See it here.   It offers suggestions and observations to advance the tax reform debate.  It’s an interesting read.  And a shame that the effort he’s exerting comes at a time of historic weakness in the executive branch with Governor Eric Greitens’ underwater approval rating and the continuing distractions of investigations.

Walters has previously declared the big points: he’s concerned by Missouri’s overreliance on income taxes.  That coupled with his belief that the state income tax depresses productive economic behavior, leads him looking to alternatives.

Of note, here are his thoughts on implementing a corporate tax changeFirst, any tax reform would need to reduce complicated special provisions presently available in Missouri. Second, tax reform would need to fix Missouri’s complicated apportionment system. Third, tax reform would need to simplify state tax

compliance—the burden of untangling the inherent complexities in Missouri’s corporate income tax law is far too great to support a healthy economic climate in Missouri. Fourth, tax reform should end Missouri’s current practice of rewarding businesses for choosing one legal entity type over another. Fifth, tax reform should pursue a stable revenue source. Finally, any tax reform should be implemented strategically using economic triggers. Closely monitoring and revaluating throughout the reform process will be key to success.

And his thoughts on the state sales tax…  While the sales tax is simple in concept, in practice it is one of the most complex state taxes. More than 200 exemptions or exclusions currently riddle Missouri’s sales and use tax base.

He’s really worried about the impact that local sales tax rates are having…. Nationally, the average local sales tax rate is 1.81%, less than half of Missouri’s average of 3.64%… According to a study by The Tax Foundation, only 13 states have higher combined state and local sales tax rates than Missouri.

From an economic perspective, Missouri’s combined state and local tax rate can affect the decisions of consumers and businesses that pay a significant portion of the sales tax on their input purchases.

Currently, Missouri does little to limit the nearly 2,300 local sales tax jurisdictions that complicate the state’s overall sales tax environment. Missouri’s combined state and local sales tax rates range from a low of 4.725% in Clinton and St. Clair Counties to highs of 10.863% in Woodson Terrace (a municipality in St. Louis County)…

And while Walters is clear he’s just raising ideas for discussion, and not necessarily endorsing this idea, he does raise the possibility of a state-wide cap…  Local control of local issues is an important goal, but state oversight seems prudent in the face of Missouri’s ever-expanding sales tax landscape. A statutory sales tax cap could mirror Missouri’s “Mack’s Creek Law,” which

places a cap on the amount of revenue that municipalities can generate from traffic tickets.

The document is weakest where it sounds out of touch – over-emphasizing the impact of tax policy.  Like this bit: Adopting a working family tax credit could help counteract the potential regressivity of sales taxes and allow lower-income workers to increase spending on basic needs. This option could incentivize lower and middle-class employees to generate more earned income.  I’m doubtful there are folks in poverty who says that lack of an incentive is the reason they don’t “generate more earned income.”

Originally in March 22 MOScout.