Weighing the pros and cons of cutting Missouri’s corporate income tax rate.
With the 2023 Legislative Session fast approaching, lawmakers are gearing up to decide whether to cut Missouri’s corporate income tax rate — which already ranks among the lowest in the country.
The proposed cut was first apart of the Missouri Legislature’s income tax rate cut that Gov. Mike Parson signed into law in early October 2022. At the time, Gov. Parson said the corporate tax issue should be dealt with during the legislature’s regular session in January instead of during the special session called to address income tax.
If it’s approved as originally included in the income tax rate cut, the rate corporations will pay in taxes on their profits will be slashed from 4% to 2%, and then allow for gradual cuts until it’s completely eliminated.
Generally speaking, corporate income taxes help fund the same services all state taxes do — education, infrastructure, and Medicaid are among some of the biggest beneficiaries.
Pros of Cutting Missouri’s Corporate Income Tax Rate
Supporters of the measure say cutting corporate income taxes will attract new business and allow companies to pay higher wages to employees. Among those supporters is Daniel Mehan, the president and CEO of the Missouri Chamber of Commerce and Industry. Daniel notes that Missouri has already cut its corporate tax rate in the past few years — from 6.25% to the current 4% rate in 2018.
That gave Missouri the eighth-lowest corporate tax rate in the country. But that’s Missouri’s rank when also considering the six states that either impose taxes on gross income receipts instead of corporate income or that don’t have a corporate or gross income tax rate at all. Missouri actually has the second-lowest corporate tax rate among the other 44 states that have one.
Daniel says the Missouri Chamber would have been glad to see the corporate tax cut included with what Gov. Parson signed in October, provided the state is in a position to still provide essential services citizens would expect to have.
“Right now, Missouri finds itself in a very strong revenue position.”—DANIEL MEHAN, President and CEO, Missouri Chamber of Commerce and Industry
“Right now, Missouri finds itself in a very strong revenue position,” Daniel says. “It’s not just due to (American Rescue Plan Act) funding or anything like that. Revenues are coming in at a pretty strong pace, and they have been for the past couple years. We think it might be time to revisit this and say ‘Okay, let’s amp it up and maybe make us that much more competitive.’”
Daniel says by that, he means that a lower tax rate will make Missouri more of a draw when companies look to relocate.
Cons of Cutting Missouri’s Corporate Income Tax Rate
For folks like State Rep. Peter Merideth (D-St. Louis), that doesn’t quite outweigh the cons. Peter says there will surely be businesses that will be happy to benefit from the cut, but he doesn’t see much indication that businesses will suddenly move here because of a cut.
“What I hear from businesses on a regular basis regarding the decision is yes, tax incentives and tax rates play in as a factor, but the much bigger factor these days is workforce, consumer base, and whether the people that work for them want to live here,” Peter says.
“What I hear from businesses on a regular basis regarding the decision is yes, tax incentives and tax rates play in as a factor, but the much bigger factor these days is workforce, consumer base, and whether the people that work for them want to live here.”—PETER MERIDETH, Missouri State Representative, District 80
And on a nuts-and-bolts level, Peter believes what matters most is having the funding to support Missouri’s schools, roads and bridges, and energy grid — all funded by tax revenue — at rates Peter says are among the lowest in the country. Another tax cut, he adds, means there’ll be even less money to invest in those things.
Daniel says the Chamber is “bullish” about the plan, and hopes it can help produce an extremely competitive business climate in Missouri. He adds he could seethe low-tax environment and Missouri’s potential as a leader in the technology sector as factors that draw attention from employers from Silicon Valley to Boston.
“You make Missouri the spot to be in the Midwest on technology opportunities, overall advanced manufacturing, active pharmaceutical ingredient production, microchips — you name it,” Daniel says. “We should make a move and make it now to aggressively market Missouri, not just because of the tax policy, but all those factors that go into that long equation called economic development.”
“We should make a move and make it now to aggressively market Missouri, not just because of the tax policy, but all those factors that go into that long equation called economic development.”—DANIEL MEHAN, President and CEO, Missouri Chamber of Commerce and Industry
Daniel says Missouri is in a solid enough competitive position that continuing to trend in that direction could be entirely possible without a corporate tax cut. If it does come to pass, Peter says he worries that if there’s a recession, Missouri’s currently healthy budget wouldn’t be able to keep pace due to tax revenue cuts and the lack of one-time pandemic relief funding. Plus, Peter says it’s entirely likely that the onus for making up for the lost tax dollars funding infrastructure and services will end up on the average Missourian.
“The other side of this is the people pushing for these tax cuts (St. Louis-based think tank Show-Me Institute and Charles Koch-funded Americans for Prosperity). They both openly say in their testimony that in their ideal world, they would get rid of the income tax and corporate tax,” Peter says. “They think that the main replacement would be two things: cuts to the budget and increases in sales tax and property tax — the two taxes that hurt regular people the most.
Corporate Income Definition
Corporate income means, for any plan year, the consolidated pre-tax income generated by the company. For purposes of the plan, corporate income for any plan year shall be determined by the committee in accordance with generally accepted accounting principles and after accounting for non-operating income or expenses and before accounting for income taxes.