Missouri Tax: Mr. Nixon's 5-year economic plan

28 May 2010 -- Ten days ago, Missouri Gov. Jay Nixon announced a "comprehensive planning initiative" to boost economic growth in the state. Four top business leaders were named to work with David Kerr, the director of the Department of Economic Development, to gather ideas for a "five-year plan."

Such initiatives often suffer the same fate as military battle plans: "No battle plan survives contact with the enemy," in this case, the legislative process.

But with a few tweaks and proper leadership, Mr. Nixon's idea could yield critical results. The state's economy is in sorry shape. It lost more than 101,000 manufacturing jobs between 1999 and 2009. So far, no one has any idea what's going to replace them.

In roughly that same time period, the median household income in Missouri dropped by 14.6 percent, the steepest drop among all 50 states. In that same time period, the national median household income dropped only 2.5 percent.

More Missourians than ever are hurting, as measured by food stamp eligibility, unemployment claims and the number of people without health insurance. They don't have jobs, so they're not paying taxes and buying stuff at the rate they used to, so the state's ability to provide essential services to its poorest, sickest and most desperate citizens is constrained, as is its ability to educate children and fix its crumbling infrastructure.

Mr. Nixon's panel must take a holistic view of the state's economic problems. If it merely suggests more "economic incentives" to offer to businesses, it will have failed.

State and local governments have been generous (with retail developments, too generous) with tax breaks and tax credits. At least $350 million in tax credits issued in the last three years alone are expected to be redeemed next year; Mr. Nixon's panel must examine what there is to show for it.

Businesses can't flourish if people don't have the money to afford their goods and services, or without a well-educated work force, or without roads, highways and bridges, sewers and clean water.

By cutting spending on state services, the state takes money out of its pocket, money that multiplies as it works its way through the economy. The Minnesota IMPLAN Group, an economic modeling firm that Mr. Nixon's panel should employ, estimates that every dollar spent on state services returns anywhere from $1.56 to $1.76 to the state, depending on the service. State money that leverages federal money — such as Medicaid spending — returns $1.95 on the dollar.

Missouri is stuck in a dreadful cycle. No matter what free market enthusiasts claim, no government can cut its way to prosperity. You have to invest money to make money.

But where will dollars come from? Tax reform. The state's income tax brackets last were adjusted in 1971; billionaires are taxed at the same 6 percent rate as someone earning $9,000 a year. Missouri is among the five states that allow corporations to deduct their federal income taxes from state income tax. Companies that collect sales taxes for the state are allowed to keep 2 percent of it for their trouble. The state loses hundreds of millions a year by not collecting taxes on certain Internet and catalog sales.

Can a business-led panel really come up with business-like solutions that require short-term sacrifice in return for long-term gain? Mr. Nixon and the Legislature sure haven't, so we must hope so. Otherwise this whole exercise will be pointless.