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Missouri’s tax code is in some ways stuck in the past, with income tax brackets that have not been adjusted for inflation since they were created in 1931, a corporate tax code that has not yet adapted to the multi-state structure of many of today’s businesses, and a sales tax base that includes a smaller share of the growing service sector than most other states.
Even the state’s most recent tax changes enacted in 2014 are largely driven by outdated and debunked notions that slashing taxes on wealthy families and joining Kansas’s race to the bottom are paths to economic growth. But the Missouri Study Commission on State Tax Policy has been taking a good hard look at these issues and more this year in an effort to identify ways to reform and modernize Missouri’s tax code.
The commission has been meeting and holding hearings throughout the year to review and study the structure, strengths, and weaknesses of Missouri’s tax laws, and consists of legislators, representatives of certain state agencies, and appointed members of the public with expertise in relevant areas. It will hold its final meeting and receive public testimony on tax policy issues in Kansas City on Nov. 15. I was fortunate to present to the commission on behalf of ITEP at its last meeting on Oct. 19 in St. Louis.
My presentation focused on principles of tax policy and how Missouri’s tax code stacks up in relation to those principles. As is true in all states to varying degrees, some aspects of Missouri’s tax code are upside down, out of date, and/or unnecessarily narrow. Missouri ranks as the 30th most unfair state and local tax system in the country, slightly above average. Reforms to address these issues include:
• Enacting a refundable state Earned Income Tax Credit would be an easily administered and high bang-for-the-buck way of bringing Missouri’s income tax code more in line with modern trends while helping offset the highly regressive nature of state sales and property taxes for low- and middle-income working families.
• Repealing Missouri’s deduction for federal income taxes – a $550 million tax break that mostly goes to the highest-income Missourians – would improve both revenue adequacy and tax fairness.
• Modernizing the state’s income tax brackets, which have been locked in place since the 1930s, could make the tax code more progressive but must be done carefully to ensure progressivity is improved without undermining revenue adequacy.
• Reforming itemized deductions, cancelling or rethinking regressive tax cuts enacted in 2014 that are set to be triggered in future years, enacting corporate combined reporting, and modernizing the sales tax base were also discussed.
• The state could also expand its sales tax base to include more of the growing service sector, though that option could be taken off the table by voters next week.
We look forward to hearing more about Missouri’s tax study commission and hope there is another productive conversation in Kansas City on Nov. 15.