Missouri’s legislature has approved nearly $2 billion in 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 for Boeing after a House vote today, and the plan awaits Governor Nixon’s (D) signature. We’ve written on this issue extensively, following it from Washington’s $9 billion bid to the union’s contract refusal, to the governor’s proposal for a “massive” incentive package (which, notably, did end up being in the range we predicted). Our opinion, that these incentives are wasteful, distortionary, and unaccountable is, thus, well-known. While Boeing benefits from this incentive today, every other Missouri taxpayer gets to foot the full freight of the tax code that Missouri’s policymakers, like Governor Nixon, have failed to reform.
But a question we’ve been hearing recently is, if Washington State offers a $9 billion package and Missouri a $1.7 billion package, isn’t Washington a shoe-in for the contract?
The answer is no. First of all, costs are different in different locations. In states other than Washington, Boeing is asking that incentive packages include a laundry-list of super-advantaged positions, like free facilities, fully paid-for new infrastructure investments, job training and recruitment assistance, largely because, in Washington State, they already have facilities and workers (if it sounds ridiculous for a major firm to ask the government to supply no-cost facilities and employee training, that may be because it is ridiculous). Crucially, as Boeing’s desire for a new union contract in Washington demonstrated, labor costs are a key component as well.
But these bids are also revealing. First, on Boeing’s list of desired features for a location, tax and regulatory factors represent 4 of the 9 components: more proof that taxes matter for business locations. Second, while Missouri’s bid is lower, it’s starting from a better position in some regards.
Washington State has a gross receipts taxA gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. known as the Business & Occupation tax. This tax problematically “pyramids” throughout the production structure, so while statutory rates are far smaller than traditional corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es, the B&O brings in a lot more revenue. Because Washington State’s business taxation regime is so onerous, they have to offer a far larger incentive package in order to stay competitive.
This is more proof about why sound tax policy is important. Businesses ask for incentives in order to get tax treatment equal to their best available offer. But if a state’s basic tax code is already their best available offer, there’s no need for incentives at all. Missouri’s admittedly flawed tax code may still have a significant advantage over Washington’s for complex multi-leveled manufacturing like Boeing, because Missouri only taxes profits, but Washington taxes gross receipts. In this case, the structure of the tax code, and not just the tax bill, makes all the difference.
More on Washington State here.
More on Missouri here.
More on Gross Receipts Taxes here.
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