Photography by Kevin A. Roberts
Has it really come to this?
We all know that the state of Missouri has fallen on hard times. Its economy is stagnant, with household income almost 12 percent below the national average. It has the lowest-paid state workforce in the nation. It ranks 42nd among the states in per-capita spending on higher education. It’s known as America’s puppy-mill capital and for having by far the lowest tobacco taxes among the states.
It just lost its eighth congressional seat in the past nine decades.
So it’s fine that Missouri might look around for ways to improve itself. The state could use a role model.
But to that end, the Republican majority in Jefferson City has outdone itself with its newest theme: There’s no place like Kansas.
Missouri GOP legislators have been openly inspired by a move spurred last year by Kansas Tea Party Republicans to slash business and personal income tax rates by more than $1.1 billion over the next two years. They have reacted like a child whose sibling got a bigger piece of cake for dessert.
At press time, a bill was moving through the Missouri General Assembly that could cut $1.6 billion or more from a state budget that already falls woefully short of meeting ordinary citizens’ needs. It would, among other things, cut Missouri business taxes by almost 25 percent.
It’s unknown where this is going to end, but with Republicans controlling veto-proof majorities in both houses of the legislature, it appears possible that some form of tax-revenue reduction may be coming during the current session. It is nothing less than surreal that the legislators would be so irresponsible as to shrink a government that is so unable—relative to other states—to serve the basic needs of its citizens.
The tax giveaway may coincide with a petulant and political refusal by Republicans to allow the state to participate in Medicaid expansion for up to 380,000 Missourians—which would cause the state to forgo billions in federal dollars (and at least 24,000 jobs)—on the theory that the state won’t be able to afford to provide coverage years down the road. GOP leaders in several other states have come to see the absurdity of such a position, but so far, not in Missouri.
This is irrational. Missouri can presently point to some of the lowest corporate taxes in America. The conservative Tax Foundation scored Missouri as having the eighth lowest corporate tax burden, as part of having the 16th best “State Business Tax Climate” among the states.
Missouri ranks 46th out of the 50 states in per capita tax collections as a percentage of state income in 2011, according to the Federation of Tax Administrators. (Kansas ranked 17th, by comparison.) Missouri taxes relative to its income came in at a stunning 32 percent below the national average. And its taxes need cutting?
Quick question: If having low corporate taxes and a business-friendly environment are so crucial to the economy of a state like Missouri, why hasn’t Missouri already reaped a windfall from ranking near the bottom in its tax rates and revenue collections? Why hasn’t there been an exodus of Kansas companies across the Missouri border for all these years of lower corporate tax rates here?
Ah, Kansas, that juggernaut to the West, formerly best known as home to Dorothy and Toto, but now seen as a fiscal pacesetter. Dorothy famously said, “Toto, I have a feeling we’re not in Kansas anymore.” I have a feeling many Missouri GOP legislators wish they were there now.
What a strange thing. The population of Kansas has grown at a lower rate since 2000 than any other state west of the Mississippi. At fewer than 2.9 million residents, it’s only slightly more populous than the St. Louis metropolitan area.
It’s home to only three Fortune 500 companies, as compared to Missouri’s 10. From an economic-development standpoint, the notion of setting one’s sights on keeping pace with Kansas is actually rather sad. And in the case of its most recent foray into Tea Party fantasyland, it’s abjectly stupid.
It has apparently escaped the attention of Missouri politicians that the actions they seek to emulate may soon push Kansas off its own fiscal cliff. The research staff of the Republican-controlled legislature there has estimated the tax cuts will cause a major shortfall by next year, one that—if left unchecked—could grow to a staggering $2.5 billion by 2018.
This wasn’t a partisan issue so much as a Tea Party issue in Kansas. Even conservative Republican Gov. Sam Brownback, who signed the narrowly passed bill into law, wasn’t able to persuade the hard-line legislators to offset their cuts by eliminating hundreds of millions of dollars in tax exemptions and deductions.
The centrist Republican president of the state Senate there called the move “reckless” and “not good public policy.” Another Republican, appalled at how Tea Party forces were able to ram through the measure, termed it “mob rule.”
It’s bad that Missouri has dropped its economic sights so low that “keeping up with Kansas” is the new battle cry. It’s worse that Missouri legislators would even give a thought to matching an initiative deemed reckless by at least some prominent Kansas Republicans.
Kansas started with higher corporate taxes than Missouri, so this is an apples-and-oranges comparison to begin with. Its tax cuts merely narrowed the playing field a bit. So what kind of misguided soul would believe this could cause Missouri to hemorrhage jobs?
Here’s one.
“I think a lot of S corporations and LLCs will start leaving Missouri, especially the profitable ones,” said Rex Sinquefield, local quasi-billionaire and self-proclaimed tax-policy genius, to the St. Louis Post-Dispatch in January. “Missouri will hemorrhage jobs unless Missouri responds quickly.”
This is the same Sinquefield who spent more than $11 million on a monumentally inane effort to reshape Missouri tax policy in his own image by eliminating city earnings taxes in St. Louis and Kansas City. He was able to force those two cities to go to the expense of a vote reaffirming the tax, and they responded in a bad economy by voting to continue taxing themselves with an epic 88 and 78 percent of the vote, respectively, in 2011.
That’s Guinness World Records stuff. If Sinquefield had any shame, he would never again show his face on a tax issue. But he and his millions aren’t going away, and he helped bankroll the effort in Kansas (and a similar one in Oklahoma). He continues his mad-political-scientist laboratory experiments, trying to prove that eliminating income taxes can magically raise all boats on a fictitious ocean of eternal prosperity.
One need not have an economics degree to understand how foolish this is.
It just takes common sense to understand why Missouri isn’t going to “hemorrhage” business to Kansas because of tax cuts there, no more than Kansas “hemorrhaged” business to Missouri when its taxes were higher.
The vast majority of companies need to stay where their customers are, so it’s not as if retailers, service companies, or most professionals or institutions are even in play with regard to taxes affecting where they’re located. The tax-cutters act like every company has a foot out the door, but in reality, only a fraction could relocate to another state if they wanted to.
As for companies that might expand or relocate, good CEOs plan for the long term, and a state like Missouri or Kansas is always one election cycle from changing its tax policy in a direction they might not like. It would be irresponsible to make a long-term investment decision on the basis of short-term tax rates.
Companies have far more serious considerations to weigh than marginal tax revenue when making expansion or relocation decisions. They evaluate the quality and availability of the workforce, location, climate, transportation, access to customers, quality of life, education, and other factors, next to which state tax rates are trifling.
And while an occasional company might defect across the Missouri border in Kansas City, such relocations can move in either direction, as happens in the St. Louis area between Missouri and Illinois, and are more likely to be driven by corporate-welfare bribery than any overriding state taxation issues.
Imagine yourself as a CEO. Would you uproot your company and all of your employees to save a few percent on your state tax bill?
There is so much noise in the political arena about “job-killing taxes” that common sense is easily overlooked. And so it is with the entire notion that simplistic tax-cutting policies can magically solve complex challenges.
Governments run on tax revenue, not fairy dust, and the taxation of income has traditionally been a major source of that revenue at the state level. It’s great politics to cut taxes. It’s not great governance, unless you have a serious alternative for providing essential services. The antitax mob does not.
The tax-cutters’ economic analysis presumes great multiplier effects when citizens “keep more of their hard-earned dollars,” but pretends that cutting state government jobs does not have the opposite effect. Are teachers, patrolmen, and other state officials not citizens? Does taking away their income not have a negative multiplier effect of its own?
One person’s tax windfall minus another person’s lost earnings equals zero—or less.
Even if Sinquefield’s theories were right—and they’re not—the relocations he sees in his wild imagination would take years to materialize, unlike the huge budget holes that would be created by drying up tax revenue today. And the human consequences of slashing services for education, healthcare, public safety, and more happen right away. As if tax-cutters would care.
For those Missouri legislators who think following the inspired example of Kansas is such a great idea, it might be worth waiting a bit to see what damage the antitax hysteria has wrought there. Better yet, find another state role model.
Enough with the ruby-red slippers.
SLM co-owner Ray Hartmann is a panelist on KETC Channel 9’s Donnybrook, which airs Thursdays at 7 p.m.
Commentary by Ray Hartmann
