What should a state do when its neighbor adopts a tax reform policy that may not be fiscally sound? That’s the question facing Missouri legislators who are witnessing businesses being lured across the border to take advantage of Kansas’ recently-implemented tax reform plan. Reforms include reduced individual income taxes, increased standard deductions, and income tax exemptions for about 191,000 partnerships, sole proprietorships, and other businesses.
To stanch the flow of fleeing businesses, Missouri legislators have come up with their own plan to shave hundreds of millions off business and individual income tax bills. The cuts would be partially offset by a phased-in 0.5% increase in the sales tax and joining the multi-state compact that collects sales taxes for online sales.
Critics of the Missouri plan argue that the state should sit tight and see if Kansas decides “it wasn’t such a good fiscal policy to decimate its revenue.” This strategy may have merit: the budget shortfall associated with the reform package has prompted Kansas Governor Sam Brownback to propose eliminating the homeowner mortgage interest and property tax deductions and cancelling the scheduled expiration of a temporary sales tax increase.
