Jobs & Prosperity
A recent Commerce Department report says Missouri’s economy grew much more slowly last year than the rest of the nation. The department ranked Missouri 43rd in economic growth last year with less than 1 percent growth. The National average was 50 percent higher at 1.5 percent, certainly not robust growth, but far better than Missouri’s numbers. The department’s studies show almost every sector of Missouri’s economy grew more slowly than the average — or shrank.
There are three major requirements to return jobs and prosperity to Missourians:
- legislation to eliminate government-mandated union membership so Missouri can compete with neighboring right-to-work states;
- regulatory reform that will free small businesses from excessive and punitive regulation and engage the power of the free market; and
- comprehensive tax reform that eliminates the politician-empowering income tax and replaces it with a consumer-empowering consumption tax.
Legislation is needed to protect workers from government-mandated union membership and prohibit agreements with unions that make union fees a condition of employment. Such legislation will restore worker freedom by giving workers a choice on whether or not they want to be part of a union. So-called right-to-work laws exist in 23 states, with Indiana being the latest to sign such a bill into law.
According to the Missouri Chamber of Commerce, states with right-to-work laws generally are more prosperous and have had greater rates of economic growth than states who favor organized labor.
Studies also show that people have moved in larger numbers to right-to-work states. Richard Vedder’s 2010 study “Right-to-Work Laws: Liberty, Prosperity, and Quality of Life,” tackled such laws from a migration angle. Vedder noted that 40 percent of Americans lived in right-to-work states in 2007, up from 28.5 percent in 1970. Moreover, Census data indicates that from April 2000 to July 2008, more than 4.7 million people moved from non-right-to-work states to right-to-work states
Growth in real per capita income in right-to-work states also is substantially higher than both the national average and with non right-to-work states. The advantage is always to the policies that promote liberty versus those that restrict choice. The fact that Missouri does not have right-to-work protections puts us in the company of such Northern Tier and Coastal states as California, New York, Michigan and Maine, not with those in the South and the Midwest (including our neighbor, Kansas), areas which generally are more reflective of the values of most Missourians.
A number of concepts have combined to separate Americans from the liberties enshrined by our founders and defended by our ancestors. One is mercantilism (sometimes called public/private partnerships or crony capitalism), an economic model developed in Europe, and based on detailed government intervention in economic affairs. Mercantilism depends on government “ … to control, regulate, subsidize and penalize commerce and production.” It empowers bureaucrats and wealthy special interests, which weakens the average individual and small business owner. Over time, it moves competition away from the marketplace to the state and federal capitols. For instance, companies discover that it is cheaper and often more profitable to lobby in Jefferson City than to compete in a free market.
Onerous regulations on businesses imposed by unelected bureaucrats in agencies that regulate such things as agriculture, conservation, labor practices, natural resources, public safety, health, and so on also stunt business growth. When business owners increasingly are bogged down with hundreds of thousands of pages of regulations, and more and more paperwork, as well as the potential for heavy fines and threats of lawsuits imposed by missing the smallest detail, it is difficult just to survive, let alone thrive. The entire structure of our economy shifts from entrepreneurship, opportunity, and growth to one of status quo and survival.
Comprehensive Tax Reform
The progressive income tax stifles the most productive individuals and institutions in society and shifts intellectual and economic energy away from generating wealth toward hiding it. It becomes a disincentive to savings, investment and prosperity. It empowers politicians to pick winners and losers via tax credits and exemptions and results in all manner of appeals from business interests for special treatment. It rewards bad character and taxes good.
Tax discussions focus too often on “reform,” but real tax reform can only be accomplished by eliminating the state income tax and replacing it with a consumption tax, which broadens the taxpayer base and makes sure that all Missourians are contributing to the general welfare. Nothing else has as proven a record of growing jobs and attracting business.
Almost no one likes the income tax as now written, and no one would design such a system from scratch. Opposition to serious tax reform is related to special interests more than convenience, efficiency, fairness or transparency. Yet, an honest appraisal of each of these characteristics always favors taxing consumption over taxing productivity or success.
How would such a system work? One example as outlined in the Missouri Jobs and Prosperity Act would:
- eliminate all state taxes on income, including personal and corporate income, franchise, estate, capital gains, interest/dividend and payroll;
- replace state revenues with a maximum 7 percent sales tax on retail purchases of goods and services;
- eliminate sales tax on business-to-business education, or used-item purchases;
- not change state taxes on gasoline sales; and
- adjust existing local sales taxes to counter the expanded tax base.
Every state that does not have an income tax is outperforming Missouri and is well above average in measures of prosperity, population growth and jobs. Their performance stands to reason because they do not tax away prosperity, making them not only business friendly but also family friendly and success friendly.
House Bill 253
One of the most important bills passed during the 2013 regular session and vetoed by the governor was HB 253, a priority bill for the majority of Missouri lawmakers. We have seen success in our border states with little or no income tax — Tennessee, for instance, has a zero percent individual income tax, has surpassed Missouri in population, and has lower debt per capita. The nine states in our country with no income taxes have outpaced the nine states with the highest income tax rates in population growth, GDP growth, and revenue growth. Lawmakers recognized the need for Missouri to be more competitive and provide incentives for industry to develop further in our state.
House Bill 253 would have lowered personal state income tax and corporate state income tax by .5 percent over a 10-year timeframe and created a $2,000 deduction for Missourians making less than $20,000 adjusted gross income. The legislation also would have created tax amnesty and added language to reprieve certain fees and penalties. Bottom line, the bill would have provided more freedom to run a successful business and limited harmful taxes that make it difficult to expand and hire new employees. House Bill 253 was a positive, across-the-board tax cut initiative that would have put more money into the hands of hard-working Missourians and benefited the economy.
In late June, the governor decided to withhold funding from the FY 2014 budget, an action that many believe is unconstitutional and likely an attempt to scare voters and undermine attempts at a veto override in September. The Missouri Constitution only allows a governor to withhold funds if state revenues are below the projected revenues. This year, Missouri’s revenues exceed the projections. In his veto, the governor cites that if the Legislature overrides his veto on HB 253, a hole would be created in state revenue. I’m extremely disappointed that the governor decided to play the politics card and threaten lawmakers.
One of the initiatives brought up in the legislature recently was Senate Joint Resolution 16, which, upon voter approval, would have imposed a 10-year, one cent sales tax to fund certain transportation projects in our state, such as roads and bridges. Senate Joint Resolution 16, the largest tax increase in Missouri history, ultimately did not pass the finish line, largely because several senators joined forces to oppose it. Senate Joint Resolution 16 would have initiated a 24 percent increase in sales tax on Missouri citizens. If it had been an income tax increase, it would have represented nearly a 12.5 percent increase.
The condition of our state’s roads and highways has been much-talked about over the last few years; legislative committees and advisors have traveled the state studying the issue. Yes, our roads need to be fixed, but an increase in Missouri taxes is not the right solution, only the easy one. The need for good roads and bridges does not justify bad public policy. Senate Joint Resolution 16 would have taken $8 billion out of Missouri’s already sluggish and fragile economy. It would radically benefit a rather small number of Missourians, such as labor unions and construction firms at the expense of all Missouri taxpayers.