A Smaller and Smaller Piece of the (Tax) Pie, Part II

Missouri’s general revenue collections are above what they were at the same time last year ($3.04 billion vs. $2.82 billion). The state can be thankful for the increase in personal income tax collections for that. However, corporate/franchise tax receipts are lower than they were at the same time last year ($137 million this year vs. $146 million last year).

This is not the first time I have written about how the corporate income tax makes up a small part of net general revenue receipts. According to my calculations, at no time over the past 10 years have net corporate income tax receipts comprised more than 5 percent of total net general revenue. Last year (fiscal year 2012), net corporate income tax receipts made up just 3.75 percent of total net general revenue.

Corporate/franchise taxes are small and keep decreasing, in part because the franchise tax is being phased out. We can pay for a corporate income tax reduction by eliminating so-called economic development tax credits. My colleague Patrick Ishmael and I recently released an essay that demonstrates how this cut would work.

Corporate income taxes are among the most economically harmful taxes that can be levied. Considering that net corporate tax receipts make up just 3.75 percent of general revenues, it should not be too difficult to eliminate the corporate income tax without seriously affecting state services.