Two Birds, One Stone: Could an Income Tax Cut Help Missouri Reverse Two Declines?

The American Legislative Exchange’s (ALEC) newest Rich States, Poor States report indicates that Missouri is currently facing an economic decline. The report’s “Economic Outlook Rank” is a “forward-looking forecast” based on 15 variables, such as the top marginal personal income tax rate and the sales tax burden. The report shows that for the most part “states that spend less—especially on income transfer programs—and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states that tax and spend more.” Missouri’s rank in the economic outlook measure fell from 21st in 2021 to 31st in 2023.

As I wrote about a few weeks ago, Missouri is also facing a demographic decline. Recent college graduates or businesses looking to relocate will be more likely to choose a state with a promising economic outlook. When I wrote about demographic decline in St. Louis, I mentioned that Austin, Texas, and Orlando, Florida, have experienced substantial growth. One likely reason for these cities’ success in attracting new residents is their lack of a local or state income tax, which serves as an incentive for businesses and individuals to move to those cities.

So what can policymakers do? Show-Me Institute analysts have written extensively about the benefits that an income-tax cut could have for Missouri. States such as Texas, Florida, and Tennessee have cut their income tax to zero and also consistently fare well in ALEC’s economic outlook and performance rankings.

While Missouri has made incremental progress on cutting taxes, we still lag behind the true national leaders. This year’s legislative session is almost over, and so far we haven’t seen any significant tax reforms become law. Lowering taxes could help both our economic and demographic woes. But we need more urgency from our elected officials on this issue, or Missouri will only continue to fall further behind.