Can Missouri afford to scrap its state income tax?
Max Gillman is the Friedrich A. Hayek Professor of Economic History at the University of Missouri-St. Louis. He told Missourinet that it could theoretically work, but it would hinge on the state luring large non-government employers to set up shop in Missouri.
“The question is whether you can go beyond government and bring in the private manufacturing firms that would make up the gap by bringing in more people and generating more sales, things like that,” he said. “It’s a tough sell.”
He suggested that data centers would be a large enough private industry to make up the revenue shortfall caused by eliminating the state’s income tax. But he also warns that Missouri could run the risk of massive revenue losses that Kansas went through when it drastically slashed its tax rates.
Gillman said that scrapping the individual income tax would cost the state $8 billion a year, which will need to be made up somehow.
“The only way to do that is to raise the sales tax and the sales tax is already at 4%,” he said. “So they’re going to have to raise the sales tax substantially to make up the revenue or otherwise discretionary spending, such as on education, would fall.”
He added that supporters of phasing out the state income tax believe it would reinvigorate Missouri’s economy.
“To bring manufacturing companies and people into the state of Missouri, that’s a tough objective, especially when you have long been a dormant state in terms of low economic growth compared to the rest of the country,” he said.
Gov. Mike Kehoe, R-Missouri, has made phasing out Missouri’s state income tax a top priority during his first term in office.
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