Colorado Governor Jared Polis recently took a (perhaps surprising) stance against income taxes. At the Steamboat Institute’s Freedom Conference, Polis said that Colorado’s state income tax should be zero. Governor Parson (and governors across the country) should take note.
Colorado’s governor defended his call for an income tax rate of zero with basic economic theory. When you tax something, you make it more expensive and discourage buying or doing it. With sin taxes such as cigarette taxes, the tax is added to do just that—make the price of cigarettes higher and discourage cigarette smoking.
But is that really what we want to do with income taxes? Do we want to discourage people from earning income? Show-Me Institute researchers have asked these questions for years as they’ve written about Missouri’s income tax and the earnings taxes in St. Louis City and Kansas City. The individual income tax accounted for more than 26 percent of Missouri’s total revenues in 2020 (Colorado’s 4.63 percent individual income tax contributed almost 20 percent of the state’s revenues in 2020). Given the adverse incentives created by income taxes, it would be in Missouri’s best interest to rely less on this harmful tax.
Missouri legislators have taken steps to lower the state income tax, perhaps indicating a general acknowledgment of the negative effects of income taxes. For example, the online sales tax bill from earlier this year includes mechanisms to incrementally lower the top state income tax rate to 4.8 percent. This is a great step in the right direction, but we are still far from zero. As Polis said: “We can find another way to generate the revenue that doesn’t discourage productivity and growth . . . and we should.” I agree, and I hope that Missouri lawmakers share this sentiment and continue to lower income taxes in our state.
