With the production location for Boeing’s new 777X jet up for grabs since the machinists’ union rejected a new contract last week, other states are looking for ways to compete. Unfortunately, at least one state looks eager to compete by replicating Washington State’s bad tax policies. The Associated Press reports that Missouri Senate Majority Leader Ron Richard (R) called offering big taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. incentives to Boeing a “no brainer,” while Governor Nixon has been coordinating with legislators to develop an incentive package. Richard stated that the planned incentive would be a “massive amount,” though no specific numbers have been offered.
For state policymakers, these incentives are bad policy, plain and simple. They create markedly different tax rates for different businesses, leading to unfairness and economic distortions. Eventually, the tax code can become so riddled with carve-outs and loopholes for favored businesses that legislators have to raise tax rates to get the same revenues, which is a bad result for every taxpayer.
Missouri’s case, however, is particularly interesting. Earlier this year, Governor Nixon prominently vetoed a tax cut that would have been worth about $700 million a year, 10 years from now. He claimed that the cut would endanger vital services like education. Indeed, many supporters of Nixon’s veto asserted that tax cuts didn’t attract businesses: increased services did.
So this is a sharp departure from Nixon’s previous thinking on the impact of taxes. If Missouri matches the incentive package that Washington State offered, then the state will cut Boeing’s tax liabilities by between $100 and $200 million a year. Instead of giving a cut to all of Missouri’s longstanding businesses and residents as proposed earlier this year, Governor Nixon and state legislatures are looking to give a handout to one company to lure them in-state.
This is bad tax policy in spades. Governor Nixon rejected a flawed, but still broad, tax cut on the grounds that taxes don’t matter much for businesses, but government services do. Now Missouri policymakers may try to attract one specific company with a “massive” and narrowly-targeted tax break, despite lack of evidence that incentives lead to economic growth, and ample evidence that they create problems.
Before Missouri’s state legislature bets the farm on one supposed economic cure-all, policymakers should live up to their state’s nickname, and demand to be shown actual evidence that tax incentives create economic growth, and do so better than broad-based tax cuts. Courageous Missouri policymakers have fought against distortionary and unfair incentive packages before, with Senator Chuck Purgason (R) engaging in a 20-hour filibuster against a major tax incentive for auto manufacturers. Hopefully, policymakers in Missouri today will have the same courage.
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