A Missouri lawmaker is proposing to do away with corporate income taxes.

Republican Senator Will Kraus

Republican Will Kraus of Lee’s Summit says his measure would stimulate business and job growth without costing the state much in lost revenue.  “One of the things that I think that’s going to be important for our growth is coming up with a niche way for us to market Missouri” said Kraus.  “One of the ways I think we could do that is by eliminating less than five percent of our revenue, but being able to market to corporations (saying) ‘Hey Missouri is a corporate tax free zone.  Come to Missouri’.”

According to numbers quoted by Kraus, the state collects between $350 million and $400 million a year from corporate taxes.  Corporate taxes since 2013 have accounted for between 3.2 percent and 5.14 percent of overall tax collections.

Because corporate taxes make up a small piece of the state’s revenue base, Kraus contends they can easily be eliminated without sacrificing state revenues.

In fact, he says the loss could be offset by income taxes on employees when new companies move into Missouri.  “Toyota.  Say we bring Toyota’s corporate headquarters in the United States into Missouri.  All their executives are going to have to pay Missouri state income tax.  And I say executives…when you bring in a corporate headquarters, you’re talking all kinds of levels (of employees that will have to pay taxes).”

Image courtesy of Missouri Budget Project

Interestingly, a tax policy group opposed to Kraus’s proposal also acknowledges corporate taxes play a relatively inconsequential role in Missouri, although not from the standpoint of eliminating them.

Of the surrounding eight states, only two have lower corporate levies.  The rate in Oklahoma and Kentucky is 6 percent while it’s 6.25 percent in Missouri.  The other six states tax corporations at a higher rate, topped by Iowa at 12 percent.

In contrast to Kraus and most Republicans, Gleason thinks eliminating the corporate tax would impact the state’s ability to provide services.  “This will not show any kind of increased economic activity, but will cause cuts to the very services and the very investments in Missourians that we need to develop our economy.”

Gleason also dismisses Kraus’ argument that eliminating taxes would bring corporate relocation’s to Missouri.  She contends their priorities are in different places. “They are looking at whether or not there’s availability of a skilled workforce” said Gleason.  “Do they have an educated workforce?  Do they have the kind of highway and transportation infrastructure to get their employees to work and to get their goods to market?”

Kraus’s proposal would gradually eliminate corporate income taxes over three years.  The rate would move from the current 6.25 percent to 4 percent in 2017 and 2 percent in 2018, while there would be no tax after 2019.

Lawmakers will decide whether to consider Kraus’s plan in the upcoming state legislature.