It seems the St. Louis Post-Dispatch thinks business tax cuts amount to corporate welfare. That is NOT corporate welfare. Corporate welfare is the government giving subsidies, grants, loopholes, and other forms of preferential treatment to specific businesses. The Export-Import Bank is an example of corporate welfare.  At the state level, various instances of Tax Increment Financing (TIF) count as corporate welfare. However, letting a person or business keep more of what he/she/it earns is not corporate welfare.

That is not how the Post-Dispatch sees it. They believe that all money is the government’s money and that we should be grateful for the few cents they leave us.

The substance of the Post-Dispatch’s argument against business tax cuts? They claim there is little evidence to support the assertion that cutting business taxes will result in increased economic activity. Except this study by Jens Arnold found that corporate income taxes were one of the most economically harmful taxes a country can impose. And this study by the Tax Foundation analyzed the economic literature and found that corporate income taxes are the most harmful to growth.

Even one of the articles they cite to support their position states, in regards to start-ups creating jobs, “their decision to create a new job would be based on whether the long-term cost of that new job would be offset by higher revenues and profits.” Well . . . if a company has more money after taxes (because their taxes go down), what will happen to their profits? They will increase.

Tax cuts aren’t everything, and even if House Bill 253 becomes law, it alone will not cause our state’s economy to go gangbusters. However, tax rates DO matter, and no amount of screeching from the Post-Dispatch will change that.

With the passage of the “Broad-Based Tax Relief Act of 2013,” opponents of tax cuts are wasting no time blasting it. One of their chief claims is that if tax rates are so important to economic growth, then Missouri should be booming because of our already (supposedly) low tax rates.

Does Missouri really have low tax rates? The truth is, it kind of depends. Missouri has higher tax rates than its neighbors in some areas and lower rates in others. This matters because not all taxes have an equal impact on a state’s economic growth. Income taxes harm an economy more than a sales tax does. Thus, all other things being equal, a 7 percent sales tax rate would be less damaging to a state’s economy than a 7 percent top income tax rate. Missouri has a higher individual income tax rate than most of its neighbors. On the other hand, its state  sales tax rate is lower than most of its neighbors.

Tax cuts are not everything. With Missouri’s income tax rates higher than most of its neighbors, there is a real need for it to stay competitive. Missouri cannot afford to do nothing. The “Broad-Based Tax Relief Act of 2013″ is not perfect, but it is a step in the right direction, and contrary to what its opponents say, it is necessary.

The Missouri Legislature has passed arguably the state’s biggest tax reform in years, the “Broad-Based Tax Relief Act of 2013,” and sent it to the governor for his signature. Today, the Missouri House passed the Senate Substitute for House Bill 253 with a 103-51 vote. The bill reduces the individual income tax slightly, but more importantly, it cuts the corporate income tax by almost half over the course of about 10 years and the tax on other businesses by half over five.

As we have discussed — especially in the past few months —  a state focus on business taxation reform is well-warranted, not only because taxes on businesses tend to negatively affect growth, but because Missouri risks being left behind by its pro-growth neighbors if it does not act. I expect Missouri Gov. Jay Nixon will sign the bill, but even if he vetoes it, there may be sufficient support in both the state House and Senate to override him. Whatever the path to its final enactment, this tax reform is the right thing for a state in need of an economic course change.

As the original HB 253 demonstrated, there was considerable support for deep business tax cuts for Missouri’s companies. That bill would have cut taxes in half for all businesses over about a five-year period, including the taxes on C-Corporations — an excellent, literature-responsive idea. To be clear, the corporate income tax reduction schedule the legislature passed should have matched that for pass-through entities at five years, not 10.

Yet, that should not take away from the fact that this tax relief measure is a good first step toward instituting even better tax policy in Missouri in the years ahead. Kudos to all who worked to get this over the finish line.

Last year, at the height of the drought in Missouri, I wrote about Missouri Gov. Jay Nixon’s Executive Order authorizing government assistance for water sharing and distribution to farmers affected by the drought. I argued that the government should not be spending public money to assist those who already have (publicly subsidized) crop insurance.

Fast forward to today. One might think that due to the drought, farm incomes would be seriously hurt. However, that is not what happened. According to a recent survey (hat tip: St. Louis Post-Dispatch) that the St. Louis Federal Reserve released, farm income for the last quarter of 2012 was either on pace to match that of the previous year or even increase. A Kansas City Federal Reserve report had similar findings. The reason incomes did not fall: “Many bankers cited the effect of crop insurance in alleviating the expected negative impact of the drought.”

So, these farmers did not really need all that extra help last year. Their insurance was enough to cover their losses. I am glad that was the case. However, if many farmers are making more money after the drought than before it hit, couldn’t they afford to pay a bit more for their insurance premiums? Currently, taxpayers heavily subsidize crop insurance premiums.

I am not advocating eliminating crop insurance. However, cutting back on public support for crop insurance is a good idea. According to one Government Accountability Office report, a 10 percent reduction in government subsidies would have saved the taxpayers $1.2 billion in 2011. Buying insurance is meant to help prevent catastrophic losses, it is not meant to make you money. The government should reduce its commitment to paying for insurance subsidies; it seems the farmers can afford it.

Earlier this week, Chief Executive magazine issued its annual “Best & Worst States for Business” survey, which asked business leaders nationwide how they view states in key policies areas such as taxation, regulation, quality of workforce, and living environment. As with most surveys, your mileage will vary based on what you think of the survey’s methodology.

Yet, it is worth noting that the business leaders who responded to Chief Executive did not hold Missouri in especially high regard. The Show-Me State ranked 31st in business friendliness compared to the rest of the United States. Lucky for us, our neighbor Illinois came in at an abysmal 48th place; unlucky for us, Kansas came in at a comfortable 19th. (Incidentally, the Chief Executive survey results resemble the Kauffman Foundation’s findings last month on business friendliness.)

Houston, we have a problem.

Speaking of Texas, there is one other thing worth noting about Chief Executive’s survey — what the states in the top five have in common. Three of the top five states — Texas (first place), Florida (second place), and Tennessee (fourth place) — do not have an individual income tax. Indiana (fifth place) just enacted legislation to cut its income tax; North Carolina (third place) is pushing hard to reduce its income taxes as well.

I have talked before about the Growth Corridor developing in the Midwest. Missouri should cut income taxes of all sorts, not only because they harm growth in a vacuum, but also because we are surrounded by neighbors who are enacting pro-growth policies in an effort to grow their states’ businesses . . . and to attract ours. Kansas may be the most visible example these days of a state’s tax policy posing a threat to Missouri’s economic future, but it is not just about Kansas. It is about the whole region.

We cannot wait any longer to start cutting these taxes. Missourians need tax relief, and they need it now.

It appears the Missouri House is set to approve a bill that would grant a tax break to gun manufacturers (hat tip: John Combest). My first reaction was that this is a stunt. Yet, worse ideas have come out of the Missouri Legislature so maybe the House is for real.

Stunt or not, this is a bad idea. According to the bill’s own sponsor, gun companies are moving because of strict gun regulations. There is no mention of the tax environment. No matter one’s opinion regarding gun control, giving tax dollars to companies that do not need them does not make sense. It is not like other tax credit programs have covered themselves in glory.

If the state really wants to make Missouri more appealing to all businesses, including gun manufacturers, it should eliminate business income taxes. That would be too simple, though, wouldn’t it?

The first step in overcoming a problem is admitting it exists. The state seems to give at least lip service to that via the Tax Credit Review Commission. But just when you think there might be hope to get our tax credit problem under control, you see stuff like this. Hopefully, this will not actually become law, but who knows at this point?

In the high-stakes arena of legislating, the Missouri Senate and House are going heads up. In March, the Senate drew a pair of fives with Senate Bill 26, its version of substantive tax reform. It is a decent hand, but the House just one-upped the upper chamber.

House Bill 253, “The Broad-Based Tax Relief Act of 2013,” would eventually create a 50 percent deduction for pass-through entity income and cut the corporate income tax rate in half. Moreover, HB 253 ends up costing less in revenue. According to the Committee on Legislative Research-Oversight Division, the estimated revenue shortfall that would occur once HB 253 is fully implemented comes to $364 million. That is less than the $438 million in lost revenue that the state expects to occur if SB 26 were to be fully implemented.

I think HB 253 is a superior tax proposal to SB 26. Importantly, HB 253 cuts more in the areas that will produce the biggest immediate and long-term growth benefits. For its part, SB 26 creates a 50 percent deduction for pass-through income and reduces both the corporate income tax by .75 percentage points and the individual income tax rate by two-thirds of a percentage point over five  years.

Business income, i.e., profits, are the returns to capital owners after labor is paid. There is a strong academic basis for believing that taxes on capital, which business income is, are among the most economically damaging a taxing entity can impose. It is good that both SB 26 and HB 253 seek to enact cuts in these taxes. However, from a growth perspective, bigger business income tax cuts would better enhance the returns to capital owners and should be preferred to considerably smaller across-the-board cuts. HB 253 does this.

If legislators want to pursue a more ambitious proposal, they could also leverage the state’s tax credit liabilities against the tax that is left over after HB 253’s cuts. Combining HB 253 with the provisions of SB 120, which passed the Senate in March, the state could set out a course to enact further reductions in business income tax rates. Something to consider.

Today, the St. Louis Post-Dispatch published a commentary by Stephen Acree, president and CEO of the Regional Housing and Community Development Alliance (RHCDA). The editorial extolled the virtues of the historic preservation tax credit under the headline “St. Louis: Rebuilt with the historic tax credit.” Setting aside the demonstrable absurdity of that proposition, I think it is worthwhile to highlight an important fact-nugget that did not find its way into Acree’s piece — namely, that the RHCDA acts as a consultant for the historic preservation tax credit, as well as other tax credits. From the organization’s website (emphasis mine):

We provide Residential Development Consulting services to both non-profit and for-profit organizations. We provide expertise in structuring developments utilizing a variety of public and private resources, including federal CDBG and HOME funds; tax-exempt bond financing; and low income housing tax credit, historic tax credit and new markets tax credit transactions.

That probably should have come up at least in the author’s bio. Unfortunately, it did not.

While we are discussing the RHCDA’s portfolio of tax credit expertise, it should be noted that the Associated Press made this revelation about the New Markets tax credit program just this weekend (emphasis mine):

Missouri has authorized more than $120 million of tax credits through a program intended to entice wealthy investors to pour money into businesses in low-income areas, but the initiative has yet to produce even half the jobs that were anticipated, according to state figures provided to The Associated Press….

At the request of the AP, the state Department of Economic Development compiled a spreadsheet documenting every New Markets tax credit that has been authorized. The 9,679 “anticipated jobs” associated with the tax credits far exceeds the 823 “actual new jobs” and 3,141 “jobs retained” under the program, though those numbers could continue to rise.

This “tax credit job-shortfall” storyline is not unique. Indeed, the AP report on the New Markets program follows earlier, similar revelations about the Quality Jobs tax credit program, which I testified about earlier this year. In the case of the Quality Jobs program, 45,000 jobs were promised; according to state records, only about 7,000 jobs were created in reality. As I said then (emphasis mine):

In practice, there is no particular consequence to the state and its public officials claiming that new jobs will be coming, even if the jobs never materialize. That may explain the difference between the number of jobs state officials promise when a tax credit project is announced and the number of jobs actually created when the project winds down. To some officials, big tax credit promises look better than small tax credit promises, even if those promises do not pan out.

The same can be said of the consultants who go to bat for these credits. Acree even has the audacity to claim that the historic preservation tax credit is “Missouri’s most useful economy-boosting program.” A program that returns 23 cents on the dollar is our “most useful economy-boosting program”?! Does this suggestion horrify anyone else?

I have a better idea: Cut taxes with the money instead and let taxpayers invest their money themselves in their own businesses. Better yet, eliminate a tax or two instead of underwriting the projects of the politically well-connected. Missouri’s most useful economy-boosting program is the hard work and innovation of its taxpayers, not some bloated, special-interest government handout.

As story after tax credit story bears out, tax credit proponents/consultants have a terrible track record of substantive, sustainable, and enduring successes. The historic preservation tax credit is a central player in this ongoing, budget-busting, decade-long state development debacle. Suffice to say, I am looking forward to the findings of the state audit of the program, due to come out later this year.

Last week, I testified in favor of Missouri House Bill 914 in Jefferson City. This latest attempt at Tax Increment Financing (TIF) reform is simply a cap on the size of individual TIF projects along with a total cap on the amount any one company (or “anchor tenant” in the definitions) can receive via TIF in Saint Louis, Saint Charles, and Jefferson Counties. I think the cap is justified and necessary. More importantly, I hope we can take this good step toward TIF reform in our state (even though the substitute version of the bill limits this reform to the Saint Louis region).

The language in the bill is admirably simple, maybe too simple. Clever lawyers will have little difficulty in getting around the caps and what I hope is the plain intent of the law. With that in mind, I hope the Missouri General Assembly strongly considers some of the language changes we suggested in the testimony. Those changes are not designed to change the bill, but simply to buttress the limits from the inevitable municipal end-runs.

The Missouri Municipal League (MML) testified against the TIF reforms, which restored order to the universe after the incident the previous week when the MML and I actually agreed on something.

For those of you racing to finish and mail your tax returns in today, you have my sympathies (not that you would notice because you probably are struggling to get all your paperwork out the door and are not reading this blog). I know nobody — except maybe your accountant (I am looking at you, H&R Block) — actually enjoys dealing with tax returns, but they are as constant as the Northern Star. However, not many people really know the true cost for all of us to do our taxes.

According to the IRS’s own numbers, most taxpayers have to spend an average of 16 hours to collect their records, do their tax planning, and fill out their actual forms. For businesses, that number jumps up to an average of 23 hours. Taken together, taxpayers spend a total of 6.1 billion hours doing their taxes. Talk about a lot of time that could be spent doing more productive things.

However, that is not the whole story. If you think April 15 is the end of your tax nightmare, think again. According to the Tax Foundation, Americans will have to work until April 18 to earn enough money to pay their tax bills. So even after they file their tax returns, the American people will have to work an extra three days to pay their share to the government.

The government needs money to function, but 3 1/2 months of income is a bit much (to put it lightly) and there is no reason why doing one’s taxes should take more than 16 minutes, never mind 16 hours. To save us time, money, and the prospect of even more inane commercials, policymakers should give us a break and fix the tax code.

The Missouri Supreme Court enabled Saint Louis City to award a staggering $390 million TIF (Tax Increment Financing) package to NorthSide Regeneration (a.k.a. Paul McKee).  This is not only the largest TIF in Saint Louis history — it is the largest TIF ever awarded in the state of Missouri.

Do you think that pumping hundreds of millions of taxpayer dollars to one developer is the key to successful North Side revitalization? I would love to be wrong on this, but can someone please give me evidence (economic, historic, etc.) where this type of huge subsidy to one developer working hand-in-hand with government planners has managed to successfully revitalize a community? Some say that McKee’s dream is worth a shot despite a high uncertainty that it will work; I obviously do not agree in this case. But who knows, maybe McKee will be to Saint Louis what Baron Haussmann was to the rebuilding of Paris.

If you are not familiar with the NorthSide project saga, I recommend reading this short article in St. Louis Magazine to get the Cliff’s Notes version.

Late last month, a New York Court of Appeals ruled that the state of New York can force online retailers such as Amazon.com and Overstock.com to collect sales taxes, even in states where the retailer does not have a physical presence. This sets up a potential showdown at the U.S. Supreme Court because this ruling conflicts with an earlier Supreme Court decision stating that states cannot force retailers to collect sales taxes in which they are not located.

If the Supreme Court rules that states can impose an online sales tax, expect to start paying more. In Missouri, the Senate approved a bill that would force online retailers to collect sales taxes; the House is considering the proposal now.

I have been going back and forth on the prospect of paying sales taxes on my Internet purchases. I am sympathetic to proponents’ arguments that say the tax code should not favor one type of business over another.

However, these types of taxes can be really complicated. There is also a decent chance that they will not generate much money. After one study in Illinois estimated that the state would collect $153 million, it turned out that after instituting a tax on e-commerce, it was on track to collect just  $6.4 million from the tax, a mere 4 percent of the original estimate (hat tip: Illinois Policy Institute) .

Again, I am sympathetic to the idea of ending tax preferences in the tax code. However, if the cure is worse than the disease, which these types of taxes are starting to look like, the state should take a pass.